Correlation Between Chow Tai and Burberry Group

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

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

Diversification Opportunities for Chow Tai and Burberry Group

0.7

Correlation Coefficient

Chow Tai  Burberry Group

Poor diversification

The 3 months correlation between Chow and Burberry is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Chow Tai Fook and Burberry Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burberry Group Plc and Chow Tai 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 Chow Tai Fook are associated (or correlated) with Burberry Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burberry Group Plc has no effect on the direction of Chow Tai i.e., Chow Tai and Burberry Group go up and down completely randomly.

Pair Corralation between Chow Tai and Burberry Group

Assuming the 90 days horizon Chow Tai Fook is expected to generate 1.51 times more return on investment than Burberry Group. However, Chow Tai is 1.51 times more volatile than Burberry Group Plc. It trades about -0.07 of its potential returns per unit of risk. Burberry Group Plc is currently generating about -0.17 per unit of risk. If you would invest  1,457  in Chow Tai Fook on March 9, 2024 and sell it today you would lose (189.00) from holding Chow Tai Fook or give up 12.97% of portfolio value over 90 days.

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

Chow Tai Fook  vs.  Burberry Group Plc

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.

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.

Pair Trading with Chow Tai and Burberry Group

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

The idea behind Chow Tai Fook and Burberry Group Plc 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.