Correlation Between South Basic and Song Hong

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

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

Diversification Opportunities for South Basic and Song Hong

-0.32

Correlation Coefficient

South Basic  Song Hong

Very good diversification

The 3 months correlation between South and Song is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding South Basic Chemicals and Song Hong Garment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Song Hong Garment and South Basic 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 South Basic Chemicals 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 Garment has no effect on the direction of South Basic i.e., South Basic and Song Hong go up and down completely randomly.

Pair Corralation between South Basic and Song Hong

Assuming the 90 days trading horizon South Basic Chemicals is expected to under-perform the Song Hong. But the stock apears to be less risky and, when comparing its historical volatility, South Basic Chemicals is 1.04 times less risky than Song Hong. The stock trades about -0.09 of its potential returns per unit of risk. The Song Hong Garment is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,310,000  in Song Hong Garment on December 22, 2024 and sell it today you would earn a total of  590,000  from holding Song Hong Garment or generate 11.11% return on investment over 90 days.

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

South Basic Chemicals  vs.  Song Hong Garment

South Basic Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days South Basic Chemicals 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 Garment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Song Hong Garment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Song Hong may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with South Basic and Song Hong

The main advantage of trading using opposite South Basic and Song Hong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South Basic 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 South Basic Chemicals and Song Hong Garment 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.