Correlation Between HEICO and Sembcorp Marine

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

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

Diversification Opportunities for HEICO and Sembcorp Marine

-0.12

Correlation Coefficient

HEICO  Sembcorp Marine

Good diversification

The 3 months correlation between HEICO and Sembcorp is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding HEICO and Sembcorp Marine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sembcorp Marine and HEICO 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 HEICO are associated (or correlated) with Sembcorp Marine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sembcorp Marine has no effect on the direction of HEICO i.e., HEICO and Sembcorp Marine go up and down completely randomly.

Pair Corralation between HEICO and Sembcorp Marine

Assuming the 90 days horizon HEICO is expected to under-perform the Sembcorp Marine. But the stock apears to be less risky and, when comparing its historical volatility, HEICO is 4.99 times less risky than Sembcorp Marine. The stock trades about 0.0 of its potential returns per unit of risk. The Sembcorp Marine is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  126.00  in Sembcorp Marine on September 12, 2024 and sell it today you would earn a total of  29.00  from holding Sembcorp Marine or generate 23.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

HEICO  vs.  Sembcorp Marine

HEICO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HEICO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HEICO is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Sembcorp Marine

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sembcorp Marine are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Sembcorp Marine reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HEICO and Sembcorp Marine

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

The idea behind HEICO and Sembcorp Marine 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..