Correlation Between Hong Leong and ECM Libra

Can any of the company-specific risk be diversified away by investing in both Hong Leong and ECM Libra 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 ECM Libra 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 ECM Libra Financial, you can compare the effects of market volatilities on Hong Leong and ECM Libra 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 ECM Libra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Leong and ECM Libra.

Diversification Opportunities for Hong Leong and ECM Libra

0.72

Correlation Coefficient

Hong Leong  ECM Libra

Poor diversification

The 3 months correlation between Hong and ECM is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Hong Leong Bank and ECM Libra Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECM Libra Financial 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 ECM Libra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECM Libra Financial has no effect on the direction of Hong Leong i.e., Hong Leong and ECM Libra go up and down completely randomly.

Pair Corralation between Hong Leong and ECM Libra

Assuming the 90 days trading horizon Hong Leong Bank is expected to generate 0.21 times more return on investment than ECM Libra. However, Hong Leong Bank is 4.81 times less risky than ECM Libra. It trades about -0.15 of its potential returns per unit of risk. ECM Libra Financial is currently generating about -0.06 per unit of risk. If you would invest  2,080  in Hong Leong Bank on September 28, 2024 and sell it today you would lose (50.00) from holding Hong Leong Bank or give up 2.4% of portfolio value over 90 days.

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

Hong Leong Bank  vs.  ECM Libra Financial

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.

ECM Libra Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECM Libra Financial 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 January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Hong Leong and ECM Libra

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

The idea behind Hong Leong Bank and ECM Libra Financial 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.