Correlation Between Dong A and Truong Thanh

Can any of the company-specific risk be diversified away by investing in both Dong A and Truong Thanh 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 Truong Thanh 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 Truong Thanh Furniture, you can compare the effects of market volatilities on Dong A and Truong Thanh 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 Truong Thanh. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dong A and Truong Thanh.

Diversification Opportunities for Dong A and Truong Thanh

0.63

Correlation Coefficient

Dong A  Truong Thanh

Poor diversification

The 3 months correlation between Dong and Truong is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Hotel and Truong Thanh Furniture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Truong Thanh Furniture 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 Truong Thanh. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Truong Thanh Furniture has no effect on the direction of Dong A i.e., Dong A and Truong Thanh go up and down completely randomly.

Pair Corralation between Dong A and Truong Thanh

Assuming the 90 days trading horizon Dong A Hotel is expected to generate 1.98 times more return on investment than Truong Thanh. However, Dong A is 1.98 times more volatile than Truong Thanh Furniture. It trades about 0.1 of its potential returns per unit of risk. Truong Thanh Furniture is currently generating about 0.05 per unit of risk. If you would invest  305,000  in Dong A Hotel on December 19, 2024 and sell it today you would earn a total of  46,000  from holding Dong A Hotel or generate 15.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Dong A Hotel  vs.  Truong Thanh Furniture

Dong A Hotel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dong A Hotel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Dong A displayed solid returns over the last few months and may actually be approaching a breakup point.

Truong Thanh Furniture

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Truong Thanh Furniture are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Truong Thanh is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dong A and Truong Thanh

The main advantage of trading using opposite Dong A and Truong Thanh positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dong A position performs unexpectedly, Truong Thanh 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 Truong Thanh will offset losses from the drop in Truong Thanh's long position.

The idea behind Dong A Hotel and Truong Thanh Furniture 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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.