Correlation Between DBS Group and Keppel

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

By analyzing existing cross correlation between DBS Group Holdings and Keppel Limited, you can compare the effects of market volatilities on DBS Group and Keppel 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 DBS Group with a short position of Keppel. Check out your portfolio center. Please also check ongoing floating volatility patterns of DBS Group and Keppel.

Diversification Opportunities for DBS Group and Keppel

0.27

Correlation Coefficient

DBS Group  Keppel

Modest diversification

The 3 months correlation between DBS and Keppel is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding DBS Group Holdings and Keppel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keppel Limited and DBS Group 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 DBS Group Holdings are associated (or correlated) with Keppel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keppel Limited has no effect on the direction of DBS Group i.e., DBS Group and Keppel go up and down completely randomly.

Pair Corralation between DBS Group and Keppel

Assuming the 90 days horizon DBS Group is expected to generate 2.18 times less return on investment than Keppel. But when comparing it to its historical volatility, DBS Group Holdings is 4.28 times less risky than Keppel. It trades about 0.08 of its potential returns per unit of risk. Keppel Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  650.00  in Keppel Limited on October 9, 2024 and sell it today you would earn a total of  360.00  from holding Keppel Limited or generate 55.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.59%
Values	Daily Returns

DBS Group Holdings  vs.  Keppel Limited

DBS Group Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DBS Group Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, DBS Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Keppel Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Keppel Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Keppel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with DBS Group and Keppel

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

The idea behind DBS Group Holdings and Keppel Limited 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.