Correlation Between Sime Darby and Hibiscus Petroleum

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

By analyzing existing cross correlation between Sime Darby Plantation and Hibiscus Petroleum BHD, you can compare the effects of market volatilities on Sime Darby and Hibiscus Petroleum 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 Hibiscus Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sime Darby and Hibiscus Petroleum.

Diversification Opportunities for Sime Darby and Hibiscus Petroleum

0.15

Correlation Coefficient

Sime Darby  Hibiscus Petroleum

Average diversification

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

Pair Corralation between Sime Darby and Hibiscus Petroleum

Assuming the 90 days trading horizon Sime Darby Plantation is expected to generate 0.57 times more return on investment than Hibiscus Petroleum. However, Sime Darby Plantation is 1.75 times less risky than Hibiscus Petroleum. It trades about 0.01 of its potential returns per unit of risk. Hibiscus Petroleum BHD is currently generating about -0.02 per unit of risk. If you would invest  488.00  in Sime Darby Plantation on December 24, 2024 and sell it today you would earn a total of  2.00  from holding Sime Darby Plantation or generate 0.41% return on investment over 90 days.

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

Sime Darby Plantation  vs.  Hibiscus Petroleum BHD

Sime Darby Plantation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sime Darby Plantation 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.

Hibiscus Petroleum BHD

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hibiscus Petroleum BHD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hibiscus Petroleum 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 Sime Darby and Hibiscus Petroleum

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

The idea behind Sime Darby Plantation and Hibiscus Petroleum 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.