Correlation Between Teijin and Swire Pacific

Can any of the company-specific risk be diversified away by investing in both Teijin and Swire Pacific at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Teijin and Swire Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Teijin and Swire Pacific, you can compare the effects of market volatilities on Teijin and Swire Pacific and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Teijin with a short position of Swire Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teijin and Swire Pacific.

Diversification Opportunities for Teijin and Swire Pacific

-0.35

Correlation Coefficient

Teijin  Swire Pacific

Very good diversification

The 3 months correlation between Teijin and Swire is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Teijin and Swire Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific and Teijin is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Teijin are associated (or correlated) with Swire Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swire Pacific has no effect on the direction of Teijin i.e., Teijin and Swire Pacific go up and down completely randomly.

Pair Corralation between Teijin and Swire Pacific

Assuming the 90 days horizon Teijin is expected to under-perform the Swire Pacific. In addition to that, Teijin is 1.87 times more volatile than Swire Pacific. It trades about -0.02 of its total potential returns per unit of risk. Swire Pacific is currently generating about 0.14 per unit of volatility. If you would invest  772.00  in Swire Pacific on September 12, 2024 and sell it today you would earn a total of  122.00  from holding Swire Pacific or generate 15.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Teijin  vs.  Swire Pacific

Teijin

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teijin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Teijin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Swire Pacific

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Swire Pacific showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teijin and Swire Pacific

The main advantage of trading using opposite Teijin and Swire Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teijin position performs unexpectedly, Swire Pacific can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Swire Pacific will offset losses from the drop in Swire Pacific's long position.

The idea behind Teijin and Swire Pacific pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.