Correlation Between PETRONAS Gas and Flexible Solutions

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

By analyzing existing cross correlation between PETRONAS Gas Berhad and Flexible Solutions International, you can compare the effects of market volatilities on PETRONAS Gas and Flexible Solutions 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 PETRONAS Gas with a short position of Flexible Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of PETRONAS Gas and Flexible Solutions.

Diversification Opportunities for PETRONAS Gas and Flexible Solutions

0.51

Correlation Coefficient

PETRONAS Gas  Flexible Solutions

Very weak diversification

The 3 months correlation between PETRONAS and Flexible is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding PETRONAS Gas Berhad and Flexible Solutions Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flexible Solutions and PETRONAS Gas 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 PETRONAS Gas Berhad are associated (or correlated) with Flexible Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flexible Solutions has no effect on the direction of PETRONAS Gas i.e., PETRONAS Gas and Flexible Solutions go up and down completely randomly.

Pair Corralation between PETRONAS Gas and Flexible Solutions

Assuming the 90 days horizon PETRONAS Gas Berhad is expected to under-perform the Flexible Solutions. But the pink sheet apears to be less risky and, when comparing its historical volatility, PETRONAS Gas Berhad is 3.42 times less risky than Flexible Solutions. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Flexible Solutions International is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  355.00  in Flexible Solutions International on December 22, 2024 and sell it today you would earn a total of  166.00  from holding Flexible Solutions International or generate 46.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

PETRONAS Gas Berhad  vs.  Flexible Solutions Internation

PETRONAS Gas Berhad

Risk-Adjusted Performance

Very Weak

Over the last 90 days PETRONAS Gas Berhad has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, PETRONAS Gas is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Flexible Solutions

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flexible Solutions International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Flexible Solutions demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PETRONAS Gas and Flexible Solutions

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

The idea behind PETRONAS Gas Berhad and Flexible Solutions International 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.