Correlation Between Dong Nai and South Basic

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

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

Diversification Opportunities for Dong Nai and South Basic

-0.25

Correlation Coefficient

Dong Nai  South Basic

Very good diversification

The 3 months correlation between Dong and South is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Dong Nai Plastic and South Basic Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Basic Chemicals and Dong Nai 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 Dong Nai Plastic are associated (or correlated) with South Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Basic Chemicals has no effect on the direction of Dong Nai i.e., Dong Nai and South Basic go up and down completely randomly.

Pair Corralation between Dong Nai and South Basic

Assuming the 90 days trading horizon Dong Nai Plastic is expected to generate 0.55 times more return on investment than South Basic. However, Dong Nai Plastic is 1.83 times less risky than South Basic. It trades about 0.0 of its potential returns per unit of risk. South Basic Chemicals is currently generating about -0.04 per unit of risk. If you would invest  2,370,000  in Dong Nai Plastic on September 29, 2024 and sell it today you would lose (370,000) from holding Dong Nai Plastic or give up 15.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	83.98%
Values	Daily Returns

Dong Nai Plastic  vs.  South Basic Chemicals

Dong Nai Plastic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dong Nai Plastic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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.

Pair Trading with Dong Nai and South Basic

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

The idea behind Dong Nai Plastic and South Basic Chemicals 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.