Correlation Between Farm Price and ECS ICT

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

By analyzing existing cross correlation between Farm Price Holdings and ECS ICT Bhd, you can compare the effects of market volatilities on Farm Price and ECS ICT 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 Farm Price with a short position of ECS ICT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farm Price and ECS ICT.

Diversification Opportunities for Farm Price and ECS ICT

-0.69

Correlation Coefficient

Farm Price  ECS ICT

Excellent diversification

The 3 months correlation between Farm and ECS is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Farm Price Holdings and ECS ICT Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECS ICT Bhd and Farm Price 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 Farm Price Holdings are associated (or correlated) with ECS ICT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECS ICT Bhd has no effect on the direction of Farm Price i.e., Farm Price and ECS ICT go up and down completely randomly.

Pair Corralation between Farm Price and ECS ICT

Assuming the 90 days trading horizon Farm Price Holdings is expected to under-perform the ECS ICT. But the stock apears to be less risky and, when comparing its historical volatility, Farm Price Holdings is 1.7 times less risky than ECS ICT. The stock trades about -0.38 of its potential returns per unit of risk. The ECS ICT Bhd is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  382.00  in ECS ICT Bhd on October 6, 2024 and sell it today you would earn a total of  20.00  from holding ECS ICT Bhd or generate 5.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Farm Price Holdings  vs.  ECS ICT Bhd

Farm Price Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farm Price Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

ECS ICT Bhd

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ECS ICT Bhd are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, ECS ICT disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Farm Price and ECS ICT

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

The idea behind Farm Price Holdings and ECS ICT Bhd 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.