Correlation Between Ho Chi and Hanoi Plastics

Can any of the company-specific risk be diversified away by investing in both Ho Chi and Hanoi Plastics 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 Ho Chi and Hanoi Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ho Chi Minh and Hanoi Plastics JSC, you can compare the effects of market volatilities on Ho Chi and Hanoi Plastics 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 Ho Chi with a short position of Hanoi Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ho Chi and Hanoi Plastics.

Diversification Opportunities for Ho Chi and Hanoi Plastics

0.76

Correlation Coefficient

Ho Chi  Hanoi Plastics

Poor diversification

The 3 months correlation between HDB and Hanoi is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ho Chi Minh and Hanoi Plastics JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanoi Plastics JSC and Ho Chi 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 Ho Chi Minh are associated (or correlated) with Hanoi Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanoi Plastics JSC has no effect on the direction of Ho Chi i.e., Ho Chi and Hanoi Plastics go up and down completely randomly.

Pair Corralation between Ho Chi and Hanoi Plastics

Assuming the 90 days trading horizon Ho Chi Minh is expected to under-perform the Hanoi Plastics. In addition to that, Ho Chi is 2.46 times more volatile than Hanoi Plastics JSC. It trades about -0.08 of its total potential returns per unit of risk. Hanoi Plastics JSC is currently generating about -0.14 per unit of volatility. If you would invest  1,460,000  in Hanoi Plastics JSC on October 23, 2024 and sell it today you would lose (140,000) from holding Hanoi Plastics JSC or give up 9.59% of portfolio value over 90 days.

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

Ho Chi Minh  vs.  Hanoi Plastics JSC

Ho Chi Minh

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ho Chi Minh has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Hanoi Plastics JSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hanoi Plastics JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Ho Chi and Hanoi Plastics

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

The idea behind Ho Chi Minh and Hanoi Plastics 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.