Correlation Between ES Ceramics and Hong Leong

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

By analyzing existing cross correlation between ES Ceramics Technology and Hong Leong Bank, you can compare the effects of market volatilities on ES Ceramics and Hong Leong 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 ES Ceramics with a short position of Hong Leong. Check out your portfolio center. Please also check ongoing floating volatility patterns of ES Ceramics and Hong Leong.

Diversification Opportunities for ES Ceramics and Hong Leong

0.15

Correlation Coefficient

ES Ceramics  Hong Leong

Average diversification

The 3 months correlation between 0100 and Hong is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding ES Ceramics Technology and Hong Leong Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Leong Bank and ES Ceramics 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 ES Ceramics Technology are associated (or correlated) with Hong Leong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Leong Bank has no effect on the direction of ES Ceramics i.e., ES Ceramics and Hong Leong go up and down completely randomly.

Pair Corralation between ES Ceramics and Hong Leong

Assuming the 90 days trading horizon ES Ceramics Technology is expected to under-perform the Hong Leong. In addition to that, ES Ceramics is 5.15 times more volatile than Hong Leong Bank. It trades about -0.01 of its total potential returns per unit of risk. Hong Leong Bank is currently generating about -0.04 per unit of volatility. If you would invest  2,076  in Hong Leong Bank on September 14, 2024 and sell it today you would lose (36.00) from holding Hong Leong Bank or give up 1.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

ES Ceramics Technology  vs.  Hong Leong Bank

ES Ceramics Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ES Ceramics Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, ES Ceramics is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Hong Leong Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hong Leong Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hong Leong 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 ES Ceramics and Hong Leong

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

The idea behind ES Ceramics Technology and Hong Leong Bank 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.