Correlation Between Viet Nam and South Basic

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

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

Diversification Opportunities for Viet Nam and South Basic

0.07

Correlation Coefficient

Viet Nam  South Basic

Significant diversification

The 3 months correlation between Viet and South is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Viet Nam Construction 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 Viet Nam 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 Viet Nam Construction 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 Viet Nam i.e., Viet Nam and South Basic go up and down completely randomly.

Pair Corralation between Viet Nam and South Basic

Assuming the 90 days trading horizon Viet Nam Construction is expected to under-perform the South Basic. But the stock apears to be less risky and, when comparing its historical volatility, Viet Nam Construction is 1.37 times less risky than South Basic. The stock trades about -0.19 of its potential returns per unit of risk. The South Basic Chemicals is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  3,725,000  in South Basic Chemicals on September 23, 2024 and sell it today you would earn a total of  775,000  from holding South Basic Chemicals or generate 20.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	54.55%
Values	Daily Returns

Viet Nam Construction  vs.  South Basic Chemicals

Viet Nam Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

South Basic Chemicals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South Basic Chemicals are ranked lower than 7 (%) 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 Viet Nam and South Basic

The main advantage of trading using opposite Viet Nam and South Basic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Viet Nam 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 Viet Nam Construction 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.