Correlation Between Notion Vtec and Sime Darby

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

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

Diversification Opportunities for Notion Vtec and Sime Darby

-0.46

Correlation Coefficient

Notion Vtec  Sime Darby

Very good diversification

The 3 months correlation between Notion and Sime is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Notion Vtec Bhd 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 Notion Vtec 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 Notion Vtec Bhd 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 Notion Vtec i.e., Notion Vtec and Sime Darby go up and down completely randomly.

Pair Corralation between Notion Vtec and Sime Darby

Assuming the 90 days trading horizon Notion Vtec Bhd is expected to generate 2.47 times more return on investment than Sime Darby. However, Notion Vtec is 2.47 times more volatile than Sime Darby Bhd. It trades about 0.19 of its potential returns per unit of risk. Sime Darby Bhd is currently generating about 0.05 per unit of risk. If you would invest  110.00  in Notion Vtec Bhd on September 24, 2024 and sell it today you would earn a total of  18.00  from holding Notion Vtec Bhd or generate 16.36% return on investment over 90 days.

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

Notion Vtec Bhd  vs.  Sime Darby Bhd

Notion Vtec Bhd

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Notion Vtec Bhd are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Notion Vtec disclosed solid returns over the last few months and may actually be approaching a breakup point.

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 quite persistent basic indicators, Sime Darby 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 Notion Vtec and Sime Darby

The main advantage of trading using opposite Notion Vtec and Sime Darby positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Notion Vtec 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 Notion Vtec Bhd 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.