Correlation Between Prime Oil and Song Ho

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

By analyzing existing cross correlation between Prime Oil Chemical and Song Ho Industrial, you can compare the effects of market volatilities on Prime Oil and Song Ho 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 Prime Oil with a short position of Song Ho. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prime Oil and Song Ho.

Diversification Opportunities for Prime Oil and Song Ho

0.2

Correlation Coefficient

Prime Oil  Song Ho

Modest diversification

The 3 months correlation between Prime and Song is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Prime Oil Chemical and Song Ho Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Song Ho Industrial and Prime Oil 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 Prime Oil Chemical are associated (or correlated) with Song Ho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Song Ho Industrial has no effect on the direction of Prime Oil i.e., Prime Oil and Song Ho go up and down completely randomly.

Pair Corralation between Prime Oil and Song Ho

Assuming the 90 days trading horizon Prime Oil Chemical is expected to under-perform the Song Ho. But the stock apears to be less risky and, when comparing its historical volatility, Prime Oil Chemical is 1.25 times less risky than Song Ho. The stock trades about -0.02 of its potential returns per unit of risk. The Song Ho Industrial is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,735  in Song Ho Industrial on September 4, 2024 and sell it today you would earn a total of  20.00  from holding Song Ho Industrial or generate 0.73% return on investment over 90 days.

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

Prime Oil Chemical  vs.  Song Ho Industrial

Prime Oil Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prime Oil Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Prime Oil is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Song Ho Industrial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Song Ho Industrial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Song Ho is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Prime Oil and Song Ho

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

The idea behind Prime Oil Chemical and Song Ho Industrial 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..