Correlation Between Choo Bee and Hong Leong

Can any of the company-specific risk be diversified away by investing in both Choo Bee and Hong Leong 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 Choo Bee and Hong Leong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Choo Bee Metal and Hong Leong Bank, you can compare the effects of market volatilities on Choo Bee and Hong Leong 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 Choo Bee with a short position of Hong Leong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Choo Bee and Hong Leong.

Diversification Opportunities for Choo Bee and Hong Leong

0.28

Correlation Coefficient

Choo Bee  Hong Leong

Modest diversification

The 3 months correlation between Choo and Hong is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Choo Bee Metal and Hong Leong Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Leong Bank and Choo Bee 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 Choo Bee Metal are associated (or correlated) with Hong Leong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Leong Bank has no effect on the direction of Choo Bee i.e., Choo Bee and Hong Leong go up and down completely randomly.

Pair Corralation between Choo Bee and Hong Leong

Assuming the 90 days trading horizon Choo Bee Metal is expected to under-perform the Hong Leong. In addition to that, Choo Bee is 3.2 times more volatile than Hong Leong Bank. It trades about -0.06 of its total potential returns per unit of risk. Hong Leong Bank is currently generating about -0.01 per unit of volatility. If you would invest  2,074  in Hong Leong Bank on September 4, 2024 and sell it today you would lose (18.00) from holding Hong Leong Bank or give up 0.87% of portfolio value over 90 days.

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

Choo Bee Metal  vs.  Hong Leong Bank

Choo Bee Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Choo Bee Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Hong Leong Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hong Leong Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hong Leong 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 Choo Bee and Hong Leong

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

The idea behind Choo Bee Metal and Hong Leong Bank 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.