Correlation Between ES Ceramics and Petronas Chemicals

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

By analyzing existing cross correlation between ES Ceramics Technology and Petronas Chemicals Group, you can compare the effects of market volatilities on ES Ceramics and Petronas Chemicals 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 ES Ceramics with a short position of Petronas Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of ES Ceramics and Petronas Chemicals.

Diversification Opportunities for ES Ceramics and Petronas Chemicals

0.27

Correlation Coefficient

ES Ceramics  Petronas Chemicals

Modest diversification

The 3 months correlation between 0100 and Petronas is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding ES Ceramics Technology and Petronas Chemicals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petronas Chemicals and ES Ceramics 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 ES Ceramics Technology are associated (or correlated) with Petronas Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petronas Chemicals has no effect on the direction of ES Ceramics i.e., ES Ceramics and Petronas Chemicals go up and down completely randomly.

Pair Corralation between ES Ceramics and Petronas Chemicals

Assuming the 90 days trading horizon ES Ceramics Technology is expected to generate 2.05 times more return on investment than Petronas Chemicals. However, ES Ceramics is 2.05 times more volatile than Petronas Chemicals Group. It trades about -0.06 of its potential returns per unit of risk. Petronas Chemicals Group is currently generating about -0.14 per unit of risk. If you would invest  17.00  in ES Ceramics Technology on September 3, 2024 and sell it today you would lose (3.00) from holding ES Ceramics Technology or give up 17.65% of portfolio value over 90 days.

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

ES Ceramics Technology  vs.  Petronas Chemicals Group

ES Ceramics Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ES Ceramics Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Petronas Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petronas Chemicals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with ES Ceramics and Petronas Chemicals

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

The idea behind ES Ceramics Technology and Petronas Chemicals Group 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.