Correlation Between FARM FRESH and ECM Libra

Can any of the company-specific risk be diversified away by investing in both FARM FRESH 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 FARM FRESH and ECM Libra into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FARM FRESH BERHAD and ECM Libra Financial, you can compare the effects of market volatilities on FARM FRESH 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 FARM FRESH with a short position of ECM Libra. Check out your portfolio center. Please also check ongoing floating volatility patterns of FARM FRESH and ECM Libra.

Diversification Opportunities for FARM FRESH and ECM Libra

-0.1

Correlation Coefficient

FARM FRESH  ECM Libra

Good diversification

The 3 months correlation between FARM and ECM is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding FARM FRESH BERHAD 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 FARM FRESH 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 FARM FRESH BERHAD 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 FARM FRESH i.e., FARM FRESH and ECM Libra go up and down completely randomly.

Pair Corralation between FARM FRESH and ECM Libra

Assuming the 90 days trading horizon FARM FRESH BERHAD is expected to under-perform the ECM Libra. But the stock apears to be less risky and, when comparing its historical volatility, FARM FRESH BERHAD is 2.71 times less risky than ECM Libra. The stock trades about -0.02 of its potential returns per unit of risk. The 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

FARM FRESH BERHAD  vs.  ECM Libra Financial

FARM FRESH BERHAD

Risk-Adjusted Performance

Very Weak

Over the last 90 days FARM FRESH BERHAD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, FARM FRESH 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 FARM FRESH and ECM Libra

The main advantage of trading using opposite FARM FRESH and ECM Libra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FARM FRESH 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 FARM FRESH BERHAD 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.