Correlation Between NFI and Sime Darby

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

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

Diversification Opportunities for NFI and Sime Darby

0.38

Correlation Coefficient

NFI  Sime Darby

Weak diversification

The 3 months correlation between NFI and Sime is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding NFI Group 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 NFI 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 NFI Group 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 NFI i.e., NFI and Sime Darby go up and down completely randomly.

Pair Corralation between NFI and Sime Darby

Assuming the 90 days horizon NFI is expected to generate 1.83 times less return on investment than Sime Darby. In addition to that, NFI is 1.03 times more volatile than Sime Darby Bhd. It trades about 0.04 of its total potential returns per unit of risk. Sime Darby Bhd is currently generating about 0.08 per unit of volatility. If you would invest  30.00  in Sime Darby Bhd on September 13, 2024 and sell it today you would earn a total of  21.00  from holding Sime Darby Bhd or generate 70.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	58.91%
Values	Daily Returns

NFI Group  vs.  Sime Darby Bhd

NFI Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NFI Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Sime Darby Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sime Darby Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Sime Darby is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NFI and Sime Darby

The main advantage of trading using opposite NFI and Sime Darby positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NFI 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 NFI Group 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.