Correlation Between Burberry Group and Chow Tai

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

By analyzing existing cross correlation between Burberry Group Plc and Chow Tai Fook, you can compare the effects of market volatilities on Burberry Group and Chow Tai 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 Burberry Group with a short position of Chow Tai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Burberry Group and Chow Tai.

Diversification Opportunities for Burberry Group and Chow Tai

0.68

Correlation Coefficient

Burberry Group  Chow Tai

Poor diversification

The 3 months correlation between Burberry and Chow is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Burberry Group Plc and Chow Tai Fook in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chow Tai Fook and Burberry Group 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 Burberry Group Plc are associated (or correlated) with Chow Tai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chow Tai Fook has no effect on the direction of Burberry Group i.e., Burberry Group and Chow Tai go up and down completely randomly.

Pair Corralation between Burberry Group and Chow Tai

Assuming the 90 days horizon Burberry Group Plc is expected to under-perform the Chow Tai. In addition to that, Burberry Group is 1.24 times more volatile than Chow Tai Fook. It trades about -0.24 of its total potential returns per unit of risk. Chow Tai Fook is currently generating about -0.13 per unit of volatility. If you would invest  1,331  in Chow Tai Fook on March 10, 2024 and sell it today you would lose (63.00) from holding Chow Tai Fook or give up 4.73% of portfolio value over 90 days.

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

Burberry Group Plc  vs.  Chow Tai Fook

Burberry Group Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Burberry Group Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Chow Tai Fook

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chow Tai Fook has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Burberry Group and Chow Tai

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

The idea behind Burberry Group Plc and Chow Tai Fook 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.