Correlation Between Senheng New and Gamuda Bhd

Can any of the company-specific risk be diversified away by investing in both Senheng New and Gamuda Bhd 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 Senheng New and Gamuda Bhd into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Senheng New Retail and Gamuda Bhd, you can compare the effects of market volatilities on Senheng New and Gamuda Bhd 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 Senheng New with a short position of Gamuda Bhd. Check out your portfolio center. Please also check ongoing floating volatility patterns of Senheng New and Gamuda Bhd.

Diversification Opportunities for Senheng New and Gamuda Bhd

0.6

Correlation Coefficient

Senheng New  Gamuda Bhd

Poor diversification

The 3 months correlation between Senheng and Gamuda is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Senheng New Retail and Gamuda Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamuda Bhd and Senheng New 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 Senheng New Retail are associated (or correlated) with Gamuda Bhd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamuda Bhd has no effect on the direction of Senheng New i.e., Senheng New and Gamuda Bhd go up and down completely randomly.

Pair Corralation between Senheng New and Gamuda Bhd

Assuming the 90 days trading horizon Senheng New Retail is expected to generate 1.63 times more return on investment than Gamuda Bhd. However, Senheng New is 1.63 times more volatile than Gamuda Bhd. It trades about 0.16 of its potential returns per unit of risk. Gamuda Bhd is currently generating about 0.17 per unit of risk. If you would invest  26.00  in Senheng New Retail on October 9, 2024 and sell it today you would earn a total of  2.00  from holding Senheng New Retail or generate 7.69% return on investment over 90 days.

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

Senheng New Retail  vs.  Gamuda Bhd

Senheng New Retail

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Senheng New Retail are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Senheng New disclosed solid returns over the last few months and may actually be approaching a breakup point.

Gamuda Bhd

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gamuda Bhd are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Gamuda Bhd disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Senheng New and Gamuda Bhd

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

The idea behind Senheng New Retail and Gamuda 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.