Sina Corporation and E-House have agreed to cooperate in the real estate market via something called asset combination. No doubt we all want to know how asset combination works. The following will probably not help.
Every possible asset combination can be plotted in risk-return space. For every level of return there exists one portfolio with the lowest risk; conversely, for every level of risk there is one portfolio with the highest return. The combination of all such portfolios is called the efficient frontier (sometimes “the Markowitz frontier”).
The efficient frontier will be concave – this is because the risk-return characteristics of a portfolio change in a non-linear fashion as its component weightings are changed. (As described above, portfolio risk is a function of the correlation of the component assets, and thus changes in a non-linear fashion as the weighting of component assets changes).
The region above the frontier is unachievable by holding risky assets alone. No portfolios can be constructed corresponding to the points in this region. Points below the frontier are suboptimal. A rational investor will hold a portfolio only on the frontier.
Quite so. Could not have put it better myself despite the fact that I still do not understand any of it.
In this particular case it appears to work like this:
As part of the cooperation plan, Sina will inject all the assets of its online real estate business into its subsidiary Leju.com. Then, the Chinese internet giant will sell its majority holdings in the subsidiary to E-House China’s real estate information and consulting service arm named Shanghai CRIC Information Technology for some additional shares accounting for 39% of the latter’s enlarged capital stock.
Trading Markets reports that E-House China currently owns the 100% stake in Shanghai CRIC Information Techy, and will therefore still be the biggest shareholder after the above deal. Which, as you now know, involves, asset combination.
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