Correlation Between Southern Steel and PMB Technology

Can any of the company-specific risk be diversified away by investing in both Southern Steel and PMB Technology 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 Southern Steel and PMB Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Southern Steel and PMB Technology

-0.4

Correlation Coefficient

Southern Steel  PMB Technology

Very good diversification

The 3 months correlation between Southern and PMB is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Southern Steel Bhd and PMB Technology Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PMB Technology Bhd and Southern Steel 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 Southern Steel Bhd are associated (or correlated) with PMB Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PMB Technology Bhd has no effect on the direction of Southern Steel i.e., Southern Steel and PMB Technology go up and down completely randomly.

Pair Corralation between Southern Steel and PMB Technology

Assuming the 90 days trading horizon Southern Steel Bhd is expected to generate 0.94 times more return on investment than PMB Technology. However, Southern Steel Bhd is 1.06 times less risky than PMB Technology. It trades about 0.08 of its potential returns per unit of risk. PMB Technology Bhd is currently generating about -0.12 per unit of risk. If you would invest  48.00  in Southern Steel Bhd on September 15, 2024 and sell it today you would earn a total of  6.00  from holding Southern Steel Bhd or generate 12.5% return on investment over 90 days.

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

Southern Steel Bhd  vs.  PMB Technology Bhd

Southern Steel Bhd

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Steel Bhd are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Southern Steel disclosed solid returns over the last few months and may actually be approaching a breakup point.

PMB Technology Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PMB Technology Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Southern Steel and PMB Technology

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

The idea behind Southern Steel Bhd and PMB Technology 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.