Correlation Between Bank Islam and Alliance Financial

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

Diversification Opportunities for Bank Islam and Alliance Financial

0.03

Correlation Coefficient

Bank Islam  Alliance Financial

Significant diversification

The 3 months correlation between Bank and Alliance is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Bank Islam Malaysia and Alliance Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance 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 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 Bank Islam i.e., Bank Islam and Alliance Financial go up and down completely randomly.

Pair Corralation between Bank Islam and Alliance Financial

Assuming the 90 days trading horizon Bank Islam Malaysia is expected to generate 0.53 times more return on investment than Alliance Financial. However, Bank Islam Malaysia is 1.88 times less risky than Alliance Financial. It trades about 0.08 of its potential returns per unit of risk. Alliance Financial Group is currently generating about -0.04 per unit of risk. If you would invest  242.00  in Bank Islam Malaysia on December 25, 2024 and sell it today you would earn a total of  10.00  from holding Bank Islam Malaysia or generate 4.13% 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.  Alliance Financial Group

Bank Islam Malaysia

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Islam Malaysia are ranked lower than 6 (%) 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.

Alliance Financial

Risk-Adjusted Performance

Modest

Over the last 90 days Alliance Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Alliance Financial 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 Alliance Financial

The main advantage of trading using opposite Bank Islam and Alliance Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Islam 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 Bank Islam Malaysia 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.