Correlation Between Sao Ta and Sea Air

Can any of the company-specific risk be diversified away by investing in both Sao Ta and Sea Air 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 Sao Ta and Sea Air into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sao Ta Foods and Sea Air Freight, you can compare the effects of market volatilities on Sao Ta and Sea Air 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 Sao Ta with a short position of Sea Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sao Ta and Sea Air.

Diversification Opportunities for Sao Ta and Sea Air

-0.15

Correlation Coefficient

Sao Ta  Sea Air

Good diversification

The 3 months correlation between Sao and Sea is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Sao Ta Foods and Sea Air Freight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Air Freight and Sao Ta 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 Sao Ta Foods are associated (or correlated) with Sea Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Air Freight has no effect on the direction of Sao Ta i.e., Sao Ta and Sea Air go up and down completely randomly.

Pair Corralation between Sao Ta and Sea Air

Assuming the 90 days trading horizon Sao Ta Foods is expected to under-perform the Sea Air. But the stock apears to be less risky and, when comparing its historical volatility, Sao Ta Foods is 2.17 times less risky than Sea Air. The stock trades about -0.06 of its potential returns per unit of risk. The Sea Air Freight is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,240,000  in Sea Air Freight on September 21, 2024 and sell it today you would lose (125,000) from holding Sea Air Freight or give up 3.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.85%
Values	Daily Returns

Sao Ta Foods  vs.  Sea Air Freight

Sao Ta Foods

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sea Air Freight

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sao Ta and Sea Air

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

The idea behind Sao Ta Foods and Sea Air Freight 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.