Correlation Between Bank Islam and Malayan Banking

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

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

Diversification Opportunities for Bank Islam and Malayan Banking

0.64

Correlation Coefficient

Bank Islam  Malayan Banking

Poor diversification

The 3 months correlation between Bank and Malayan is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bank Islam Malaysia and Malayan Banking Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Malayan Banking Bhd and Bank Islam 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 Bank Islam Malaysia are associated (or correlated) with Malayan Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Malayan Banking Bhd has no effect on the direction of Bank Islam i.e., Bank Islam and Malayan Banking go up and down completely randomly.

Pair Corralation between Bank Islam and Malayan Banking

Assuming the 90 days trading horizon Bank Islam Malaysia is expected to under-perform the Malayan Banking. In addition to that, Bank Islam is 1.47 times more volatile than Malayan Banking Bhd. It trades about -0.09 of its total potential returns per unit of risk. Malayan Banking Bhd is currently generating about -0.06 per unit of volatility. If you would invest  1,058  in Malayan Banking Bhd on October 24, 2024 and sell it today you would lose (30.00) from holding Malayan Banking Bhd or give up 2.84% of portfolio value over 90 days.

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

Bank Islam Malaysia  vs.  Malayan Banking Bhd

Bank Islam Malaysia

Risk-Adjusted Performance

0 of 100

Very Weak

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

Malayan Banking Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Malayan Banking Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Malayan Banking 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 Bank Islam and Malayan Banking

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

The idea behind Bank Islam Malaysia and Malayan Banking 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.