Correlation Between Farm Price and Sime Darby

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

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

Diversification Opportunities for Farm Price and Sime Darby

0.31

Correlation Coefficient

Farm Price  Sime Darby

Weak diversification

The 3 months correlation between Farm and Sime is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Farm Price Holdings 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 Farm Price 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 Farm Price Holdings 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 Farm Price i.e., Farm Price and Sime Darby go up and down completely randomly.

Pair Corralation between Farm Price and Sime Darby

Assuming the 90 days trading horizon Farm Price Holdings is expected to under-perform the Sime Darby. But the stock apears to be less risky and, when comparing its historical volatility, Farm Price Holdings is 1.02 times less risky than Sime Darby. The stock trades about -0.06 of its potential returns per unit of risk. The Sime Darby Bhd is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  232.00  in Sime Darby Bhd on September 24, 2024 and sell it today you would lose (5.00) from holding Sime Darby Bhd or give up 2.16% of portfolio value over 90 days.

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

Farm Price Holdings  vs.  Sime Darby Bhd

Farm Price Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farm Price Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 Farm Price and Sime Darby

The main advantage of trading using opposite Farm Price and Sime Darby positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farm Price 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 Farm Price Holdings 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..