Correlation Between Dong Nai and Cotec Construction

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

By analyzing existing cross correlation between Dong Nai Plastic and Cotec Construction JSC, you can compare the effects of market volatilities on Dong Nai and Cotec Construction 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 Nai with a short position of Cotec Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dong Nai and Cotec Construction.

Diversification Opportunities for Dong Nai and Cotec Construction

-0.55

Correlation Coefficient

Dong Nai  Cotec Construction

Excellent diversification

The 3 months correlation between Dong and Cotec is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dong Nai Plastic and Cotec Construction JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cotec Construction JSC and Dong Nai 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 Nai Plastic are associated (or correlated) with Cotec Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cotec Construction JSC has no effect on the direction of Dong Nai i.e., Dong Nai and Cotec Construction go up and down completely randomly.

Pair Corralation between Dong Nai and Cotec Construction

Assuming the 90 days trading horizon Dong Nai is expected to generate 16.81 times less return on investment than Cotec Construction. In addition to that, Dong Nai is 1.13 times more volatile than Cotec Construction JSC. It trades about 0.01 of its total potential returns per unit of risk. Cotec Construction JSC is currently generating about 0.16 per unit of volatility. If you would invest  6,880,000  in Cotec Construction JSC on December 29, 2024 and sell it today you would earn a total of  1,580,000  from holding Cotec Construction JSC or generate 22.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	77.97%
Values	Daily Returns

Dong Nai Plastic  vs.  Cotec Construction JSC

Dong Nai Plastic

Risk-Adjusted Performance

Very Weak

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

Cotec Construction JSC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cotec Construction JSC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cotec Construction displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dong Nai and Cotec Construction

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

The idea behind Dong Nai Plastic and Cotec Construction JSC 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.