Correlation Between Hong Leong and Farm Price

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

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

Diversification Opportunities for Hong Leong and Farm Price

0.5

Correlation Coefficient

Hong Leong  Farm Price

Very weak diversification

The 3 months correlation between Hong and Farm is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Hong Leong Bank and Farm Price Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farm Price Holdings and Hong Leong 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 Hong Leong Bank are associated (or correlated) with Farm Price. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farm Price Holdings has no effect on the direction of Hong Leong i.e., Hong Leong and Farm Price go up and down completely randomly.

Pair Corralation between Hong Leong and Farm Price

Assuming the 90 days trading horizon Hong Leong Bank is expected to generate 0.41 times more return on investment than Farm Price. However, Hong Leong Bank is 2.45 times less risky than Farm Price. It trades about -0.03 of its potential returns per unit of risk. Farm Price Holdings is currently generating about -0.06 per unit of risk. If you would invest  2,076  in Hong Leong Bank on September 15, 2024 and sell it today you would lose (32.00) from holding Hong Leong Bank or give up 1.54% of portfolio value over 90 days.

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

Hong Leong Bank  vs.  Farm Price Holdings

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.

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.

Pair Trading with Hong Leong and Farm Price

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

The idea behind Hong Leong Bank and Farm Price Holdings 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.