Correlation Between Dong A and Song Hong

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

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

Diversification Opportunities for Dong A and Song Hong

-0.63

Correlation Coefficient

Dong A  Song Hong

Excellent diversification

The 3 months correlation between Dong and Song is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Hotel 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 Dong A 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 Dong A Hotel 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 Dong A i.e., Dong A and Song Hong go up and down completely randomly.

Pair Corralation between Dong A and Song Hong

Assuming the 90 days trading horizon Dong A is expected to generate 1.45 times less return on investment than Song Hong. But when comparing it to its historical volatility, Dong A Hotel is 3.53 times less risky than Song Hong. It trades about 0.03 of its potential returns per unit of risk. Song Hong Garment is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5,200,000  in Song Hong Garment on September 17, 2024 and sell it today you would earn a total of  0.00  from holding Song Hong Garment or generate 0.0% return on investment over 90 days.

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

Dong A Hotel  vs.  Song Hong Garment

Dong A Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Song Hong Garment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Song Hong Garment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Song Hong displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dong A and Song Hong

The main advantage of trading using opposite Dong A and Song Hong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dong A 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 Dong A Hotel 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.