Correlation Between China Construction and Swire Properties

Can any of the company-specific risk be diversified away by investing in both China Construction and Swire Properties 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 China Construction and Swire Properties into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Construction Bank and Swire Properties Limited, you can compare the effects of market volatilities on China Construction and Swire Properties 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 China Construction with a short position of Swire Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Construction and Swire Properties.

Diversification Opportunities for China Construction and Swire Properties

0.84

Correlation Coefficient

China Construction  Swire Properties

Very poor diversification

The 3 months correlation between China and Swire is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Swire Properties Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Properties and China Construction 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 China Construction Bank are associated (or correlated) with Swire Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swire Properties has no effect on the direction of China Construction i.e., China Construction and Swire Properties go up and down completely randomly.

Pair Corralation between China Construction and Swire Properties

Assuming the 90 days horizon China Construction Bank is expected to generate 2.95 times more return on investment than Swire Properties. However, China Construction is 2.95 times more volatile than Swire Properties Limited. It trades about 0.08 of its potential returns per unit of risk. Swire Properties Limited is currently generating about 0.11 per unit of risk. If you would invest  75.00  in China Construction Bank on April 24, 2025 and sell it today you would earn a total of  15.00  from holding China Construction Bank or generate 20.0% return on investment over 90 days.

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

China Construction Bank  vs.  Swire Properties Limited

China Construction Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Swire Properties

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Properties Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Swire Properties reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Construction and Swire Properties

The main advantage of trading using opposite China Construction and Swire Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Construction position performs unexpectedly, Swire Properties 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 Properties will offset losses from the drop in Swire Properties' long position.

The idea behind China Construction Bank and Swire Properties Limited 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.

Check out your portfolio center.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..