Correlation Between Nafoods Group and Song Hong

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Can any of the company-specific risk be diversified away by investing in both Nafoods Group and Song Hong 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 Nafoods Group and Song Hong into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nafoods Group JSC and Song Hong Aluminum, you can compare the effects of market volatilities on Nafoods Group and Song Hong 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 Nafoods Group with a short position of Song Hong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nafoods Group and Song Hong.

Diversification Opportunities for Nafoods Group and Song Hong

0.01
  Correlation Coefficient

Significant diversification

The 3 months correlation between Nafoods and Song is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Nafoods Group JSC and Song Hong Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Song Hong Aluminum and Nafoods Group 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 Nafoods Group JSC are associated (or correlated) with Song Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Song Hong Aluminum has no effect on the direction of Nafoods Group i.e., Nafoods Group and Song Hong go up and down completely randomly.

Pair Corralation between Nafoods Group and Song Hong

Assuming the 90 days trading horizon Nafoods Group JSC is expected to generate 0.96 times more return on investment than Song Hong. However, Nafoods Group JSC is 1.04 times less risky than Song Hong. It trades about 0.06 of its potential returns per unit of risk. Song Hong Aluminum is currently generating about -0.08 per unit of risk. If you would invest  1,736,364  in Nafoods Group JSC on September 3, 2024 and sell it today you would earn a total of  278,636  from holding Nafoods Group JSC or generate 16.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy99.21%
ValuesDaily Returns

Nafoods Group JSC  vs.  Song Hong Aluminum

 Performance 
       Timeline  
Nafoods Group JSC 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Nafoods Group JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Nafoods Group is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Song Hong Aluminum 

Risk-Adjusted Performance

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

Nafoods Group and Song Hong Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nafoods Group and Song Hong

The main advantage of trading using opposite Nafoods Group and Song Hong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nafoods Group position performs unexpectedly, Song Hong 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 Song Hong will offset losses from the drop in Song Hong's long position.
The idea behind Nafoods Group JSC and Song Hong Aluminum 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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