Correlation Between Vietnam Dairy and Sea Air

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

By analyzing existing cross correlation between Vietnam Dairy Products and Sea Air Freight, you can compare the effects of market volatilities on Vietnam Dairy and Sea Air 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 Dairy with a short position of Sea Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vietnam Dairy and Sea Air.

Diversification Opportunities for Vietnam Dairy and Sea Air

0.76

Correlation Coefficient

Vietnam Dairy  Sea Air

Poor diversification

The 3 months correlation between Vietnam and Sea is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Vietnam Dairy Products and Sea Air Freight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Air Freight and Vietnam Dairy 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 Dairy Products are associated (or correlated) with Sea Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Air Freight has no effect on the direction of Vietnam Dairy i.e., Vietnam Dairy and Sea Air go up and down completely randomly.

Pair Corralation between Vietnam Dairy and Sea Air

Assuming the 90 days trading horizon Vietnam Dairy is expected to generate 1.37 times less return on investment than Sea Air. But when comparing it to its historical volatility, Vietnam Dairy Products is 3.07 times less risky than Sea Air. It trades about 0.11 of its potential returns per unit of risk. Sea Air Freight is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,100,000  in Sea Air Freight on September 16, 2024 and sell it today you would earn a total of  50,000  from holding Sea Air Freight or generate 1.61% return on investment over 90 days.

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

Vietnam Dairy Products  vs.  Sea Air Freight

Vietnam Dairy Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vietnam Dairy Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Sea Air Freight

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sea Air Freight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Sea Air 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 Dairy and Sea Air

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

The idea behind Vietnam Dairy Products and Sea Air Freight 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.