Correlation Between Vietnam Petroleum and Saigon Machinery
Can any of the company-specific risk be diversified away by investing in both Vietnam Petroleum and Saigon Machinery 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 Petroleum and Saigon Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vietnam Petroleum Transport and Saigon Machinery Spare, you can compare the effects of market volatilities on Vietnam Petroleum and Saigon Machinery 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 Petroleum with a short position of Saigon Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vietnam Petroleum and Saigon Machinery.
Diversification Opportunities for Vietnam Petroleum and Saigon Machinery
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Vietnam and Saigon is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Vietnam Petroleum Transport and Saigon Machinery Spare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Saigon Machinery Spare and Vietnam Petroleum 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 Petroleum Transport are associated (or correlated) with Saigon Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Saigon Machinery Spare has no effect on the direction of Vietnam Petroleum i.e., Vietnam Petroleum and Saigon Machinery go up and down completely randomly.
Pair Corralation between Vietnam Petroleum and Saigon Machinery
Assuming the 90 days trading horizon Vietnam Petroleum Transport is expected to generate 1.44 times more return on investment than Saigon Machinery. However, Vietnam Petroleum is 1.44 times more volatile than Saigon Machinery Spare. It trades about 0.33 of its potential returns per unit of risk. Saigon Machinery Spare is currently generating about 0.45 per unit of risk. If you would invest 1,355,000 in Vietnam Petroleum Transport on November 7, 2024 and sell it today you would earn a total of 95,000 from holding Vietnam Petroleum Transport or generate 7.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 29.41% |
| Values | Daily Returns |
Vietnam Petroleum Transport vs. Saigon Machinery Spare
Performance |
| Timeline |
| Vietnam Petroleum |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
| Saigon Machinery Spare |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Excellent
Vietnam Petroleum and Saigon Machinery Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vietnam Petroleum and Saigon Machinery
The main advantage of trading using opposite Vietnam Petroleum and Saigon Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vietnam Petroleum position performs unexpectedly, Saigon Machinery 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 Saigon Machinery will offset losses from the drop in Saigon Machinery's long position.The idea behind Vietnam Petroleum Transport and Saigon Machinery Spare 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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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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