Correlation Between KL Technology and Sime Darby

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

By analyzing existing cross correlation between KL Technology and Sime Darby Bhd, you can compare the effects of market volatilities on KL Technology and Sime Darby 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 KL Technology with a short position of Sime Darby. Check out your portfolio center. Please also check ongoing floating volatility patterns of KL Technology and Sime Darby.

Diversification Opportunities for KL Technology and Sime Darby

-0.2

Correlation Coefficient

KL Technology  Sime Darby

Good diversification

The 3 months correlation between KLTE and Sime is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding KL Technology and Sime Darby Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sime Darby Bhd and KL Technology 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 KL Technology are associated (or correlated) with Sime Darby. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sime Darby Bhd has no effect on the direction of KL Technology i.e., KL Technology and Sime Darby go up and down completely randomly.

Pair Corralation between KL Technology and Sime Darby

Assuming the 90 days trading horizon KL Technology is expected to generate 0.73 times more return on investment than Sime Darby. However, KL Technology is 1.37 times less risky than Sime Darby. It trades about -0.22 of its potential returns per unit of risk. Sime Darby Bhd is currently generating about -0.41 per unit of risk. If you would invest  6,433  in KL Technology on October 16, 2024 and sell it today you would lose (277.00) from holding KL Technology or give up 4.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

KL Technology  vs.  Sime Darby Bhd

Pair Trading with KL Technology and Sime Darby

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

The idea behind KL Technology and Sime Darby 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.