Correlation Between Danang Rubber and Bao Ngoc

Can any of the company-specific risk be diversified away by investing in both Danang Rubber and Bao Ngoc 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 Danang Rubber and Bao Ngoc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Danang Rubber JSC and Bao Ngoc Investment, you can compare the effects of market volatilities on Danang Rubber and Bao Ngoc 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 Danang Rubber with a short position of Bao Ngoc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danang Rubber and Bao Ngoc.

Diversification Opportunities for Danang Rubber and Bao Ngoc

0.4

Correlation Coefficient

Danang Rubber  Bao Ngoc

Very weak diversification

The 3 months correlation between Danang and Bao is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Danang Rubber JSC and Bao Ngoc Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bao Ngoc Investment and Danang Rubber 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 Danang Rubber JSC are associated (or correlated) with Bao Ngoc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bao Ngoc Investment has no effect on the direction of Danang Rubber i.e., Danang Rubber and Bao Ngoc go up and down completely randomly.

Pair Corralation between Danang Rubber and Bao Ngoc

Assuming the 90 days trading horizon Danang Rubber JSC is expected to under-perform the Bao Ngoc. But the stock apears to be less risky and, when comparing its historical volatility, Danang Rubber JSC is 3.29 times less risky than Bao Ngoc. The stock trades about -0.39 of its potential returns per unit of risk. The Bao Ngoc Investment is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  970,000  in Bao Ngoc Investment on October 26, 2024 and sell it today you would lose (80,000) from holding Bao Ngoc Investment or give up 8.25% of portfolio value over 90 days.

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

Danang Rubber JSC  vs.  Bao Ngoc Investment

Danang Rubber JSC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bao Ngoc Investment

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bao Ngoc Investment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Bao Ngoc is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Danang Rubber and Bao Ngoc

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

The idea behind Danang Rubber JSC and Bao Ngoc Investment 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .