Correlation Between Binhthuan Agriculture and Song Hong

Can any of the company-specific risk be diversified away by investing in both Binhthuan Agriculture 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 Binhthuan Agriculture and Song Hong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Binhthuan Agriculture Services and Song Hong Construction, you can compare the effects of market volatilities on Binhthuan Agriculture 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 Binhthuan Agriculture with a short position of Song Hong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Binhthuan Agriculture and Song Hong.

Diversification Opportunities for Binhthuan Agriculture and Song Hong

0.74

Correlation Coefficient

Binhthuan Agriculture  Song Hong

Poor diversification

The 3 months correlation between Binhthuan and Song is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Binhthuan Agriculture Services and Song Hong Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Song Hong Construction and Binhthuan Agriculture 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 Binhthuan Agriculture Services 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 Construction has no effect on the direction of Binhthuan Agriculture i.e., Binhthuan Agriculture and Song Hong go up and down completely randomly.

Pair Corralation between Binhthuan Agriculture and Song Hong

Assuming the 90 days trading horizon Binhthuan Agriculture is expected to generate 1.83 times less return on investment than Song Hong. But when comparing it to its historical volatility, Binhthuan Agriculture Services is 3.63 times less risky than Song Hong. It trades about 0.18 of its potential returns per unit of risk. Song Hong Construction is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  660,000  in Song Hong Construction on August 30, 2024 and sell it today you would earn a total of  30,000  from holding Song Hong Construction or generate 4.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	73.91%
Values	Daily Returns

Binhthuan Agriculture Services  vs.  Song Hong Construction

Binhthuan Agriculture

Risk-Adjusted Performance

0 of 100

Very Weak

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

Song Hong Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Binhthuan Agriculture and Song Hong

The main advantage of trading using opposite Binhthuan Agriculture and Song Hong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Binhthuan Agriculture 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 Binhthuan Agriculture Services and Song Hong Construction 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.