Correlation Between PIE Industrial and BP Plastics

Can any of the company-specific risk be diversified away by investing in both PIE Industrial and BP Plastics 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 PIE Industrial and BP Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PIE Industrial Bhd and BP Plastics Holding, you can compare the effects of market volatilities on PIE Industrial and BP Plastics 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 PIE Industrial with a short position of BP Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIE Industrial and BP Plastics.

Diversification Opportunities for PIE Industrial and BP Plastics

-0.44

Correlation Coefficient

PIE Industrial  BP Plastics

Very good diversification

The 3 months correlation between PIE and 5100 is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding PIE Industrial Bhd and BP Plastics Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP Plastics Holding and PIE Industrial 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 PIE Industrial Bhd are associated (or correlated) with BP Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP Plastics Holding has no effect on the direction of PIE Industrial i.e., PIE Industrial and BP Plastics go up and down completely randomly.

Pair Corralation between PIE Industrial and BP Plastics

Assuming the 90 days trading horizon PIE Industrial Bhd is expected to generate 1.58 times more return on investment than BP Plastics. However, PIE Industrial is 1.58 times more volatile than BP Plastics Holding. It trades about 0.1 of its potential returns per unit of risk. BP Plastics Holding is currently generating about -0.04 per unit of risk. If you would invest  540.00  in PIE Industrial Bhd on September 4, 2024 and sell it today you would earn a total of  63.00  from holding PIE Industrial Bhd or generate 11.67% return on investment over 90 days.

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

PIE Industrial Bhd  vs.  BP Plastics Holding

PIE Industrial Bhd

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PIE Industrial Bhd are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, PIE Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BP Plastics Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP Plastics Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, BP Plastics 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 PIE Industrial and BP Plastics

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

The idea behind PIE Industrial Bhd and BP Plastics Holding 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.