Correlation Between FARM FRESH and Petronas Gas

Can any of the company-specific risk be diversified away by investing in both FARM FRESH and Petronas Gas 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 Petronas Gas 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 Petronas Gas Bhd, you can compare the effects of market volatilities on FARM FRESH and Petronas Gas 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 Petronas Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of FARM FRESH and Petronas Gas.

Diversification Opportunities for FARM FRESH and Petronas Gas

-0.67

Correlation Coefficient

FARM FRESH  Petronas Gas

Excellent diversification

The 3 months correlation between FARM and Petronas is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding FARM FRESH BERHAD and Petronas Gas Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petronas Gas Bhd 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 Petronas Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petronas Gas Bhd has no effect on the direction of FARM FRESH i.e., FARM FRESH and Petronas Gas go up and down completely randomly.

Pair Corralation between FARM FRESH and Petronas Gas

Assuming the 90 days trading horizon FARM FRESH BERHAD is expected to generate 2.73 times more return on investment than Petronas Gas. However, FARM FRESH is 2.73 times more volatile than Petronas Gas Bhd. It trades about 0.1 of its potential returns per unit of risk. Petronas Gas Bhd is currently generating about -0.06 per unit of risk. If you would invest  172.00  in FARM FRESH BERHAD on September 4, 2024 and sell it today you would earn a total of  15.00  from holding FARM FRESH BERHAD or generate 8.72% return on investment over 90 days.

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

FARM FRESH BERHAD  vs.  Petronas Gas Bhd

FARM FRESH BERHAD

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FARM FRESH BERHAD are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, FARM FRESH may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Petronas Gas Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind FARM FRESH BERHAD and Petronas Gas 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.