Correlation Between Bank Islam and ECM Libra

Can any of the company-specific risk be diversified away by investing in both Bank Islam and ECM Libra 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 ECM Libra 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 ECM Libra Financial, you can compare the effects of market volatilities on Bank Islam and ECM Libra 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 ECM Libra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Islam and ECM Libra.

Diversification Opportunities for Bank Islam and ECM Libra

0.15

Correlation Coefficient

Bank Islam  ECM Libra

Average diversification

The 3 months correlation between Bank and ECM is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Bank Islam Malaysia and ECM Libra Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECM Libra Financial 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 ECM Libra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECM Libra Financial has no effect on the direction of Bank Islam i.e., Bank Islam and ECM Libra go up and down completely randomly.

Pair Corralation between Bank Islam and ECM Libra

Assuming the 90 days trading horizon Bank Islam is expected to generate 8.04 times less return on investment than ECM Libra. But when comparing it to its historical volatility, Bank Islam Malaysia is 4.76 times less risky than ECM Libra. It trades about 0.05 of its potential returns per unit of risk. ECM Libra Financial is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  17.00  in ECM Libra Financial on December 22, 2024 and sell it today you would earn a total of  3.00  from holding ECM Libra Financial or generate 17.65% return on investment over 90 days.

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

Bank Islam Malaysia  vs.  ECM Libra Financial

Bank Islam Malaysia

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Islam Malaysia are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

ECM Libra Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ECM Libra Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, ECM Libra disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Islam and ECM Libra

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

The idea behind Bank Islam Malaysia and ECM Libra Financial 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.