Correlation Between Public Bank and Gamuda Bhd

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

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

Diversification Opportunities for Public Bank and Gamuda Bhd

-0.41

Correlation Coefficient

Public Bank  Gamuda Bhd

Very good diversification

The 3 months correlation between Public and Gamuda is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Public Bank Bhd and Gamuda Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamuda Bhd and Public 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 Public Bank Bhd are associated (or correlated) with Gamuda Bhd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamuda Bhd has no effect on the direction of Public Bank i.e., Public Bank and Gamuda Bhd go up and down completely randomly.

Pair Corralation between Public Bank and Gamuda Bhd

Assuming the 90 days trading horizon Public Bank Bhd is expected to under-perform the Gamuda Bhd. But the stock apears to be less risky and, when comparing its historical volatility, Public Bank Bhd is 1.21 times less risky than Gamuda Bhd. The stock trades about -0.05 of its potential returns per unit of risk. The Gamuda Bhd is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  780.00  in Gamuda Bhd on September 18, 2024 and sell it today you would earn a total of  180.00  from holding Gamuda Bhd or generate 23.08% return on investment over 90 days.

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

Public Bank Bhd  vs.  Gamuda Bhd

Public Bank Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gamuda Bhd

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gamuda Bhd are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Gamuda Bhd disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Public Bank and Gamuda Bhd

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

The idea behind Public Bank Bhd and Gamuda 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.