Correlation Between South Basic and Bich Chi

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

By analyzing existing cross correlation between South Basic Chemicals and Bich Chi Food, you can compare the effects of market volatilities on South Basic and Bich Chi 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 South Basic with a short position of Bich Chi. Check out your portfolio center. Please also check ongoing floating volatility patterns of South Basic and Bich Chi.

Diversification Opportunities for South Basic and Bich Chi

0.47

Correlation Coefficient

South Basic  Bich Chi

Very weak diversification

The 3 months correlation between South and Bich is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding South Basic Chemicals and Bich Chi Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bich Chi Food and South Basic 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 South Basic Chemicals are associated (or correlated) with Bich Chi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bich Chi Food has no effect on the direction of South Basic i.e., South Basic and Bich Chi go up and down completely randomly.

Pair Corralation between South Basic and Bich Chi

Assuming the 90 days trading horizon South Basic is expected to generate 1.43 times less return on investment than Bich Chi. But when comparing it to its historical volatility, South Basic Chemicals is 1.24 times less risky than Bich Chi. It trades about 0.12 of its potential returns per unit of risk. Bich Chi Food is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,640,000  in Bich Chi Food on September 29, 2024 and sell it today you would earn a total of  510,000  from holding Bich Chi Food or generate 14.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	52.31%
Values	Daily Returns

South Basic Chemicals  vs.  Bich Chi Food

South Basic Chemicals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South Basic Chemicals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, South Basic displayed solid returns over the last few months and may actually be approaching a breakup point.

Bich Chi Food

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bich Chi Food are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Bich Chi displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with South Basic and Bich Chi

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

The idea behind South Basic Chemicals and Bich Chi Food 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.