Correlation Between Sao Ta and Saigon Machinery

Can any of the company-specific risk be diversified away by investing in both Sao Ta and Saigon Machinery 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 Sao Ta and Saigon Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sao Ta Foods and Saigon Machinery Spare, you can compare the effects of market volatilities on Sao Ta and Saigon Machinery 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 Sao Ta with a short position of Saigon Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sao Ta and Saigon Machinery.

Diversification Opportunities for Sao Ta and Saigon Machinery

0.06

Correlation Coefficient

Sao Ta  Saigon Machinery

Significant diversification

The 3 months correlation between Sao and Saigon is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Sao Ta Foods and Saigon Machinery Spare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Saigon Machinery Spare and Sao Ta 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 Sao Ta Foods are associated (or correlated) with Saigon Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Saigon Machinery Spare has no effect on the direction of Sao Ta i.e., Sao Ta and Saigon Machinery go up and down completely randomly.

Pair Corralation between Sao Ta and Saigon Machinery

Assuming the 90 days trading horizon Sao Ta is expected to generate 11.39 times less return on investment than Saigon Machinery. But when comparing it to its historical volatility, Sao Ta Foods is 3.41 times less risky than Saigon Machinery. It trades about 0.02 of its potential returns per unit of risk. Saigon Machinery Spare is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  835,026  in Saigon Machinery Spare on September 23, 2024 and sell it today you would earn a total of  304,974  from holding Saigon Machinery Spare or generate 36.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	49.63%
Values	Daily Returns

Sao Ta Foods  vs.  Saigon Machinery Spare

Sao Ta Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sao Ta Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Sao Ta is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Saigon Machinery Spare

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Sao Ta and Saigon Machinery

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

The idea behind Sao Ta Foods and Saigon Machinery Spare 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.