Correlation Between Southern Steel and Gamuda Bhd

Can any of the company-specific risk be diversified away by investing in both Southern Steel 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 Southern Steel and Gamuda Bhd 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 Gamuda Bhd, you can compare the effects of market volatilities on Southern Steel 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 Southern Steel with a short position of Gamuda Bhd. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Steel and Gamuda Bhd.

Diversification Opportunities for Southern Steel and Gamuda Bhd

0.33

Correlation Coefficient

Southern Steel  Gamuda Bhd

Weak diversification

The 3 months correlation between Southern and Gamuda is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Southern Steel Bhd and Gamuda Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamuda 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 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 Southern Steel i.e., Southern Steel and Gamuda Bhd go up and down completely randomly.

Pair Corralation between Southern Steel and Gamuda Bhd

Assuming the 90 days trading horizon Southern Steel Bhd is expected to under-perform the Gamuda Bhd. In addition to that, Southern Steel is 1.22 times more volatile than Gamuda Bhd. It trades about -0.04 of its total potential returns per unit of risk. Gamuda Bhd is currently generating about 0.17 per unit of volatility. If you would invest  461.00  in Gamuda Bhd on October 9, 2024 and sell it today you would earn a total of  25.00  from holding Gamuda Bhd or generate 5.42% return on investment over 90 days.

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

Southern Steel Bhd  vs.  Gamuda Bhd

Southern Steel Bhd

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Steel Bhd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Southern Steel may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Southern Steel and Gamuda Bhd

The main advantage of trading using opposite Southern Steel and Gamuda Bhd positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Steel 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 Southern Steel Bhd 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.

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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.