Correlation Between Sime Darby and Alliance Financial

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

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

Diversification Opportunities for Sime Darby and Alliance Financial

-0.78

Correlation Coefficient

Sime Darby  Alliance Financial

Pay attention - limited upside

The 3 months correlation between Sime and Alliance is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Sime Darby Bhd and Alliance Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Financial and Sime Darby 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 Sime Darby Bhd are associated (or correlated) with Alliance Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Financial has no effect on the direction of Sime Darby i.e., Sime Darby and Alliance Financial go up and down completely randomly.

Pair Corralation between Sime Darby and Alliance Financial

Assuming the 90 days trading horizon Sime Darby Bhd is expected to under-perform the Alliance Financial. In addition to that, Sime Darby is 1.15 times more volatile than Alliance Financial Group. It trades about -0.03 of its total potential returns per unit of risk. Alliance Financial Group is currently generating about 0.16 per unit of volatility. If you would invest  368.00  in Alliance Financial Group on September 28, 2024 and sell it today you would earn a total of  118.00  from holding Alliance Financial Group or generate 32.07% return on investment over 90 days.

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

Sime Darby Bhd  vs.  Alliance Financial Group

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.

Alliance Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Financial Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Alliance Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sime Darby and Alliance Financial

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

The idea behind Sime Darby Bhd and Alliance Financial Group 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.