Correlation Between Hong Leong and Malayan Banking

Can any of the company-specific risk be diversified away by investing in both Hong Leong and Malayan Banking 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 Malayan Banking 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 Malayan Banking Bhd, you can compare the effects of market volatilities on Hong Leong and Malayan Banking 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 Malayan Banking. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Leong and Malayan Banking.

Diversification Opportunities for Hong Leong and Malayan Banking

0.48

Correlation Coefficient

Hong Leong  Malayan Banking

Very weak diversification

The 3 months correlation between Hong and Malayan is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Hong Leong Bank and Malayan Banking Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Malayan Banking Bhd 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 Malayan Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Malayan Banking Bhd has no effect on the direction of Hong Leong i.e., Hong Leong and Malayan Banking go up and down completely randomly.

Pair Corralation between Hong Leong and Malayan Banking

Assuming the 90 days trading horizon Hong Leong is expected to generate 1.63 times less return on investment than Malayan Banking. In addition to that, Hong Leong is 1.19 times more volatile than Malayan Banking Bhd. It trades about 0.06 of its total potential returns per unit of risk. Malayan Banking Bhd is currently generating about 0.12 per unit of volatility. If you would invest  823.00  in Malayan Banking Bhd on August 29, 2024 and sell it today you would earn a total of  195.00  from holding Malayan Banking Bhd or generate 23.69% return on investment over 90 days.

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

Hong Leong Bank  vs.  Malayan Banking Bhd

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.

Malayan Banking Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Malayan Banking Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Malayan Banking 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 Hong Leong and Malayan Banking

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

The idea behind Hong Leong Bank and Malayan Banking 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.