Correlation Between South Basic and Saigon Machinery

Can any of the company-specific risk be diversified away by investing in both South Basic 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 South Basic and Saigon Machinery 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 Saigon Machinery Spare, you can compare the effects of market volatilities on South Basic 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 South Basic with a short position of Saigon Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of South Basic and Saigon Machinery.

Diversification Opportunities for South Basic and Saigon Machinery

-0.62

Correlation Coefficient

South Basic  Saigon Machinery

Excellent diversification

The 3 months correlation between South and Saigon is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding South Basic Chemicals 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 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 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 South Basic i.e., South Basic and Saigon Machinery go up and down completely randomly.

Pair Corralation between South Basic and Saigon Machinery

Assuming the 90 days trading horizon South Basic is expected to generate 4.65 times less return on investment than Saigon Machinery. But when comparing it to its historical volatility, South Basic Chemicals is 1.89 times less risky than Saigon Machinery. It trades about 0.14 of its potential returns per unit of risk. Saigon Machinery Spare is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  1,070,000  in Saigon Machinery Spare on October 4, 2024 and sell it today you would earn a total of  310,000  from holding Saigon Machinery Spare or generate 28.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	26.56%
Values	Daily Returns

South Basic Chemicals  vs.  Saigon Machinery Spare

South Basic Chemicals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in South Basic Chemicals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, South Basic displayed solid returns over the last few months and may actually be approaching a breakup point.

Saigon Machinery Spare

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Saigon Machinery Spare are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Saigon Machinery displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with South Basic and Saigon Machinery

The main advantage of trading using opposite South Basic and Saigon Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South Basic 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 South Basic Chemicals 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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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.