Correlation Between Shangri La and Sime Darby

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

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

Diversification Opportunities for Shangri La and Sime Darby

-0.11

Correlation Coefficient

Shangri La  Sime Darby

Good diversification

The 3 months correlation between Shangri and Sime is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Shangri La Hotels and Sime Darby Plantation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sime Darby Plantation and Shangri La 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 Shangri La Hotels 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 Plantation has no effect on the direction of Shangri La i.e., Shangri La and Sime Darby go up and down completely randomly.

Pair Corralation between Shangri La and Sime Darby

Assuming the 90 days trading horizon Shangri La Hotels is expected to under-perform the Sime Darby. But the stock apears to be less risky and, when comparing its historical volatility, Shangri La Hotels is 1.67 times less risky than Sime Darby. The stock trades about 0.0 of its potential returns per unit of risk. The Sime Darby Plantation is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  456.00  in Sime Darby Plantation on September 16, 2024 and sell it today you would earn a total of  40.00  from holding Sime Darby Plantation or generate 8.77% return on investment over 90 days.

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

Shangri La Hotels  vs.  Sime Darby Plantation

Shangri La Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sime Darby Plantation

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sime Darby Plantation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Sime Darby may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shangri La and Sime Darby

The main advantage of trading using opposite Shangri La and Sime Darby positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shangri La 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 Shangri La Hotels and Sime Darby Plantation 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..