Correlation Between CPE Technology and Sime Darby

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

By analyzing existing cross correlation between CPE Technology Berhad and Sime Darby Plantation, you can compare the effects of market volatilities on CPE Technology and Sime Darby 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 CPE Technology with a short position of Sime Darby. Check out your portfolio center. Please also check ongoing floating volatility patterns of CPE Technology and Sime Darby.

Diversification Opportunities for CPE Technology and Sime Darby

-0.42

Correlation Coefficient

CPE Technology  Sime Darby

Very good diversification

The 3 months correlation between CPE and Sime is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding CPE Technology Berhad and Sime Darby Plantation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sime Darby Plantation and CPE Technology 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 CPE Technology Berhad are associated (or correlated) with Sime Darby. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sime Darby Plantation has no effect on the direction of CPE Technology i.e., CPE Technology and Sime Darby go up and down completely randomly.

Pair Corralation between CPE Technology and Sime Darby

Assuming the 90 days trading horizon CPE Technology Berhad is expected to under-perform the Sime Darby. In addition to that, CPE Technology is 1.67 times more volatile than Sime Darby Plantation. It trades about -0.02 of its total potential returns per unit of risk. Sime Darby Plantation is currently generating about 0.12 per unit of volatility. If you would invest  449.00  in Sime Darby Plantation on September 5, 2024 and sell it today you would earn a total of  59.00  from holding Sime Darby Plantation or generate 13.14% return on investment over 90 days.

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

CPE Technology Berhad  vs.  Sime Darby Plantation

CPE Technology Berhad

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CPE Technology Berhad has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, CPE Technology is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Sime Darby Plantation

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with CPE Technology and Sime Darby

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

The idea behind CPE Technology Berhad and Sime Darby Plantation 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.