Correlation Between ITOCHU and Swire Pacific

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

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

Diversification Opportunities for ITOCHU and Swire Pacific

-0.22

Correlation Coefficient

ITOCHU  Swire Pacific

Very good diversification

The 3 months correlation between ITOCHU and Swire is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding ITOCHU and Swire Pacific Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific Limited and ITOCHU 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 ITOCHU 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 Limited has no effect on the direction of ITOCHU i.e., ITOCHU and Swire Pacific go up and down completely randomly.

Pair Corralation between ITOCHU and Swire Pacific

Assuming the 90 days horizon ITOCHU is expected to generate 12.75 times less return on investment than Swire Pacific. But when comparing it to its historical volatility, ITOCHU is 1.59 times less risky than Swire Pacific. It trades about 0.02 of its potential returns per unit of risk. Swire Pacific Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  147.00  in Swire Pacific Limited on May 3, 2025 and sell it today you would earn a total of  64.00  from holding Swire Pacific Limited or generate 43.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

ITOCHU  vs.  Swire Pacific Limited

ITOCHU

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ITOCHU are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, ITOCHU is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Swire Pacific Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, Swire Pacific reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ITOCHU and Swire Pacific

The main advantage of trading using opposite ITOCHU and Swire Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITOCHU 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 ITOCHU and Swire Pacific 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.