Correlation Between RHB Bank and Sime Darby

Can any of the company-specific risk be diversified away by investing in both RHB Bank and Sime Darby 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 RHB Bank and Sime Darby into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RHB Bank Bhd and Sime Darby Bhd, you can compare the effects of market volatilities on RHB Bank and Sime Darby 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 RHB Bank with a short position of Sime Darby. Check out your portfolio center. Please also check ongoing floating volatility patterns of RHB Bank and Sime Darby.

Diversification Opportunities for RHB Bank and Sime Darby

-0.6

Correlation Coefficient

RHB Bank  Sime Darby

Excellent diversification

The 3 months correlation between RHB and Sime is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding RHB Bank Bhd and Sime Darby Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sime Darby Bhd and RHB Bank 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 RHB Bank Bhd are associated (or correlated) with Sime Darby. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sime Darby Bhd has no effect on the direction of RHB Bank i.e., RHB Bank and Sime Darby go up and down completely randomly.

Pair Corralation between RHB Bank and Sime Darby

Assuming the 90 days trading horizon RHB Bank Bhd is expected to generate 0.59 times more return on investment than Sime Darby. However, RHB Bank Bhd is 1.69 times less risky than Sime Darby. It trades about 0.03 of its potential returns per unit of risk. Sime Darby Bhd is currently generating about 0.01 per unit of risk. If you would invest  569.00  in RHB Bank Bhd on September 28, 2024 and sell it today you would earn a total of  77.00  from holding RHB Bank Bhd or generate 13.53% return on investment over 90 days.

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

RHB Bank Bhd  vs.  Sime Darby Bhd

RHB Bank Bhd

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RHB Bank Bhd are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, RHB Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Sime Darby Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sime Darby Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Sime Darby is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with RHB Bank and Sime Darby

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

The idea behind RHB Bank Bhd and Sime Darby 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 Global Correlations module to find global opportunities by holding instruments from different markets.