Correlation Between Thanh Dat and South Basic

Can any of the company-specific risk be diversified away by investing in both Thanh Dat and South Basic 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 Thanh Dat and South Basic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Thanh Dat Investment and South Basic Chemicals, you can compare the effects of market volatilities on Thanh Dat and South Basic 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 Thanh Dat with a short position of South Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thanh Dat and South Basic.

Diversification Opportunities for Thanh Dat and South Basic

0.64

Correlation Coefficient

Thanh Dat  South Basic

Poor diversification

The 3 months correlation between Thanh and South is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Thanh Dat Investment and South Basic Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Basic Chemicals and Thanh Dat 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 Thanh Dat Investment are associated (or correlated) with South Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Basic Chemicals has no effect on the direction of Thanh Dat i.e., Thanh Dat and South Basic go up and down completely randomly.

Pair Corralation between Thanh Dat and South Basic

Assuming the 90 days trading horizon Thanh Dat is expected to generate 5.66 times less return on investment than South Basic. But when comparing it to its historical volatility, Thanh Dat Investment is 1.2 times less risky than South Basic. It trades about 0.02 of its potential returns per unit of risk. South Basic Chemicals is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,760,000  in South Basic Chemicals on October 13, 2024 and sell it today you would earn a total of  510,000  from holding South Basic Chemicals or generate 13.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Thanh Dat Investment  vs.  South Basic Chemicals

Thanh Dat Investment

Risk-Adjusted Performance

1 of 100

Weak

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

South Basic Chemicals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South Basic Chemicals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, South Basic displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thanh Dat and South Basic

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

The idea behind Thanh Dat Investment and South Basic Chemicals 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.