Correlation Between Hong Leong and United Plantations

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

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

Diversification Opportunities for Hong Leong and United Plantations

-0.55

Correlation Coefficient

Hong Leong  United Plantations

Excellent diversification

The 3 months correlation between Hong and United is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Hong Leong Bank 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 Hong Leong 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 Hong Leong Bank 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 Hong Leong i.e., Hong Leong and United Plantations go up and down completely randomly.

Pair Corralation between Hong Leong and United Plantations

Assuming the 90 days trading horizon Hong Leong Bank is expected to under-perform the United Plantations. But the stock apears to be less risky and, when comparing its historical volatility, Hong Leong Bank is 2.21 times less risky than United Plantations. The stock trades about -0.02 of its potential returns per unit of risk. The United Plantations Bhd is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,651  in United Plantations Bhd on September 30, 2024 and sell it today you would earn a total of  483.00  from holding United Plantations Bhd or generate 18.22% return on investment over 90 days.

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

Hong Leong Bank  vs.  United Plantations Bhd

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.

United Plantations Bhd

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Plantations Bhd are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, United Plantations disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hong Leong and United Plantations

The main advantage of trading using opposite Hong Leong and United Plantations positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hong Leong 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 Hong Leong Bank 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.