Correlation Between Sime Darby and MI Technovation

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

Diversification Opportunities for Sime Darby and MI Technovation

-0.31

Correlation Coefficient

Sime Darby  MI Technovation

Very good diversification

The 3 months correlation between Sime and 5286 is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Sime Darby Bhd and MI Technovation Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Technovation Bhd 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 MI Technovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Technovation Bhd has no effect on the direction of Sime Darby i.e., Sime Darby and MI Technovation go up and down completely randomly.

Pair Corralation between Sime Darby and MI Technovation

Assuming the 90 days trading horizon Sime Darby is expected to generate 6.82 times less return on investment than MI Technovation. But when comparing it to its historical volatility, Sime Darby Bhd is 1.91 times less risky than MI Technovation. It trades about 0.01 of its potential returns per unit of risk. MI Technovation Bhd is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  137.00  in MI Technovation Bhd on September 28, 2024 and sell it today you would earn a total of  85.00  from holding MI Technovation Bhd or generate 62.04% return on investment over 90 days.

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

Sime Darby Bhd  vs.  MI Technovation Bhd

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.

MI Technovation Bhd

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Sime Darby and MI Technovation

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

The idea behind Sime Darby Bhd and MI Technovation 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.