Correlation Between Alliance Financial and Gamuda Bhd

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

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

Diversification Opportunities for Alliance Financial and Gamuda Bhd

0.48

Correlation Coefficient

Alliance Financial  Gamuda Bhd

Very weak diversification

The 3 months correlation between Alliance and Gamuda is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Financial Group and Gamuda Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamuda Bhd and Alliance Financial 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 Alliance Financial Group 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 Alliance Financial i.e., Alliance Financial and Gamuda Bhd go up and down completely randomly.

Pair Corralation between Alliance Financial and Gamuda Bhd

Assuming the 90 days trading horizon Alliance Financial Group is expected to generate 0.81 times more return on investment than Gamuda Bhd. However, Alliance Financial Group is 1.24 times less risky than Gamuda Bhd. It trades about 0.16 of its potential returns per unit of risk. Gamuda Bhd is currently generating about 0.03 per unit of risk. If you would invest  451.00  in Alliance Financial Group on October 25, 2024 and sell it today you would earn a total of  73.00  from holding Alliance Financial Group or generate 16.19% return on investment over 90 days.

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

Alliance Financial Group  vs.  Gamuda Bhd

Alliance Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Financial Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Alliance Financial disclosed solid returns over the last few months and may actually be approaching a breakup point.

Gamuda Bhd

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gamuda Bhd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Gamuda Bhd 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 Alliance Financial and Gamuda Bhd

The main advantage of trading using opposite Alliance Financial and Gamuda Bhd positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alliance Financial 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 Alliance Financial Group 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.