Correlation Between Hong Leong and FARM FRESH

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

Diversification Opportunities for Hong Leong and FARM FRESH

-0.28

Correlation Coefficient

Hong Leong  FARM FRESH

Very good diversification

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

Pair Corralation between Hong Leong and FARM FRESH

Assuming the 90 days trading horizon Hong Leong Bank is expected to under-perform the FARM FRESH. But the stock apears to be less risky and, when comparing its historical volatility, Hong Leong Bank is 1.76 times less risky than FARM FRESH. The stock trades about -0.12 of its potential returns per unit of risk. The FARM FRESH BERHAD is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  178.00  in FARM FRESH BERHAD on October 16, 2024 and sell it today you would earn a total of  2.00  from holding FARM FRESH BERHAD or generate 1.12% return on investment over 90 days.

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

Hong Leong Bank  vs.  FARM FRESH BERHAD

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.

FARM FRESH BERHAD

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FARM FRESH BERHAD are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, FARM FRESH 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 Hong Leong and FARM FRESH

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

The idea behind Hong Leong Bank and FARM FRESH BERHAD 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.