Assets correlation in Malaysian stock market before and during pandemic Covid19

Abstract

Stock market volatility is an unsolved issue discussed by many scholars. Uncertain political scenarios, complex economic issues surrounding and ambiguity of various information are among the factors contributed to the stock market volatility. This situation is also known as VUCA environment. Investors and fund managers faced difficulties in making investment decisions in these macros challenging situation since the element of systematic risks were rising. It’s also influencing the degree of asset correlation in the stock market and leads to the diversification strategy problem. In the Modern Portfolio Theory, the elements of investment risk can be minimized through portfolio diversification. The diversification benefit can be maximized by combining negative correlation assets in a portfolio. Therefore, objective of the study is to measure the various values or assets’ correlation in Malaysian stock market for duration of ‘before and during the pandemic covid19’. 13 different types of assets were being analyzed. This study had provided the lights that asset combination are changes upon market condition. Comparison of assets correlation between all the sub-period showed that ‘during pandemic’, the number of negative correlation assets is 36%. This is higher compared to ‘before pandemic’ and ‘whole period’ duration. Utilities (7) and REITs (7) asset sectorial are having highest negative assets correlation. This condition gave higher opportunities for the fund managers and investors to minimize their investment risk