Correlation Between Southern Steel and United Plantations

Can any of the company-specific risk be diversified away by investing in both Southern Steel and United Plantations 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 Southern Steel and United Plantations into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Southern Steel and United Plantations

-0.79

Correlation Coefficient

Southern Steel  United Plantations

Pay attention - limited upside

The 3 months correlation between Southern and United is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Southern Steel Bhd and United Plantations Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Plantations Bhd and Southern Steel 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 Southern Steel Bhd are associated (or correlated) with United Plantations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Plantations Bhd has no effect on the direction of Southern Steel i.e., Southern Steel and United Plantations go up and down completely randomly.

Pair Corralation between Southern Steel and United Plantations

Assuming the 90 days trading horizon Southern Steel Bhd is expected to under-perform the United Plantations. In addition to that, Southern Steel is 4.06 times more volatile than United Plantations Bhd. It trades about -0.13 of its total potential returns per unit of risk. United Plantations Bhd is currently generating about 0.15 per unit of volatility. If you would invest  2,040  in United Plantations Bhd on December 25, 2024 and sell it today you would earn a total of  228.00  from holding United Plantations Bhd or generate 11.18% return on investment over 90 days.

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

Southern Steel Bhd  vs.  United Plantations Bhd

Southern Steel Bhd

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern Steel Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

United Plantations Bhd

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Plantations Bhd are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, United Plantations may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Southern Steel and United Plantations

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

The idea behind Southern Steel Bhd and United Plantations 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.