Correlation Between Vietnam Rubber and Phuoc Hoa

Can any of the company-specific risk be diversified away by investing in both Vietnam Rubber and Phuoc Hoa 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 Vietnam Rubber and Phuoc Hoa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vietnam Rubber Group and Phuoc Hoa Rubber, you can compare the effects of market volatilities on Vietnam Rubber and Phuoc Hoa 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 Vietnam Rubber with a short position of Phuoc Hoa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vietnam Rubber and Phuoc Hoa.

Diversification Opportunities for Vietnam Rubber and Phuoc Hoa

0.03

Correlation Coefficient

Vietnam Rubber  Phuoc Hoa

Significant diversification

The 3 months correlation between Vietnam and Phuoc is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Vietnam Rubber Group and Phuoc Hoa Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phuoc Hoa Rubber and Vietnam Rubber 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 Vietnam Rubber Group are associated (or correlated) with Phuoc Hoa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phuoc Hoa Rubber has no effect on the direction of Vietnam Rubber i.e., Vietnam Rubber and Phuoc Hoa go up and down completely randomly.

Pair Corralation between Vietnam Rubber and Phuoc Hoa

Assuming the 90 days trading horizon Vietnam Rubber Group is expected to under-perform the Phuoc Hoa. In addition to that, Vietnam Rubber is 1.28 times more volatile than Phuoc Hoa Rubber. It trades about -0.03 of its total potential returns per unit of risk. Phuoc Hoa Rubber is currently generating about -0.03 per unit of volatility. If you would invest  5,741,327  in Phuoc Hoa Rubber on September 29, 2024 and sell it today you would lose (401,327) from holding Phuoc Hoa Rubber or give up 6.99% of portfolio value over 90 days.

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

Vietnam Rubber Group  vs.  Phuoc Hoa Rubber

Vietnam Rubber Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vietnam Rubber Group 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.

Phuoc Hoa Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vietnam Rubber and Phuoc Hoa

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

The idea behind Vietnam Rubber Group and Phuoc Hoa Rubber 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.