Correlation Between RHB Bank and PIE Industrial

Can any of the company-specific risk be diversified away by investing in both RHB Bank and PIE Industrial 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 PIE Industrial 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 PIE Industrial Bhd, you can compare the effects of market volatilities on RHB Bank and PIE Industrial 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 PIE Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of RHB Bank and PIE Industrial.

Diversification Opportunities for RHB Bank and PIE Industrial

0.62

Correlation Coefficient

RHB Bank  PIE Industrial

Poor diversification

The 3 months correlation between RHB and PIE is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding RHB Bank Bhd and PIE Industrial Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIE Industrial 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 PIE Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIE Industrial Bhd has no effect on the direction of RHB Bank i.e., RHB Bank and PIE Industrial go up and down completely randomly.

Pair Corralation between RHB Bank and PIE Industrial

Assuming the 90 days trading horizon RHB Bank is expected to generate 1.77 times less return on investment than PIE Industrial. But when comparing it to its historical volatility, RHB Bank Bhd is 2.04 times less risky than PIE Industrial. It trades about 0.15 of its potential returns per unit of risk. PIE Industrial Bhd is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  521.00  in PIE Industrial Bhd on September 5, 2024 and sell it today you would earn a total of  82.00  from holding PIE Industrial Bhd or generate 15.74% return on investment over 90 days.

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

RHB Bank Bhd  vs.  PIE Industrial Bhd

RHB Bank Bhd

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RHB Bank Bhd are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, RHB Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PIE Industrial Bhd

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PIE Industrial Bhd are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, PIE Industrial disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RHB Bank and PIE Industrial

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

The idea behind RHB Bank Bhd and PIE Industrial 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.