Correlation Between Pha Le and LDG Investment

Can any of the company-specific risk be diversified away by investing in both Pha Le and LDG Investment 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 Pha Le and LDG Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pha Le Plastics and LDG Investment JSC, you can compare the effects of market volatilities on Pha Le and LDG Investment 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 Pha Le with a short position of LDG Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pha Le and LDG Investment.

Diversification Opportunities for Pha Le and LDG Investment

0.25

Correlation Coefficient

Pha Le  LDG Investment

Modest diversification

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

Pair Corralation between Pha Le and LDG Investment

Assuming the 90 days trading horizon Pha Le Plastics is expected to generate 0.69 times more return on investment than LDG Investment. However, Pha Le Plastics is 1.45 times less risky than LDG Investment. It trades about 0.03 of its potential returns per unit of risk. LDG Investment JSC is currently generating about -0.07 per unit of risk. If you would invest  418,000  in Pha Le Plastics on September 17, 2024 and sell it today you would earn a total of  46,000  from holding Pha Le Plastics or generate 11.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.59%
Values	Daily Returns

Pha Le Plastics  vs.  LDG Investment JSC

Pha Le Plastics

Risk-Adjusted Performance

0 of 100

Very Weak

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

LDG Investment JSC

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LDG Investment JSC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, LDG Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Pha Le and LDG Investment

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

The idea behind Pha Le Plastics and LDG Investment JSC 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.