Correlation Between Song Hong and Pacific Petroleum

Can any of the company-specific risk be diversified away by investing in both Song Hong and Pacific Petroleum 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 Song Hong and Pacific Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Song Hong Construction and Pacific Petroleum Transportation, you can compare the effects of market volatilities on Song Hong and Pacific Petroleum 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 Song Hong with a short position of Pacific Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Hong and Pacific Petroleum.

Diversification Opportunities for Song Hong and Pacific Petroleum

0.34

Correlation Coefficient

Song Hong  Pacific Petroleum

Weak diversification

The 3 months correlation between Song and Pacific is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Song Hong Construction and Pacific Petroleum Transportati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Petroleum and Song Hong 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 Song Hong Construction are associated (or correlated) with Pacific Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Petroleum has no effect on the direction of Song Hong i.e., Song Hong and Pacific Petroleum go up and down completely randomly.

Pair Corralation between Song Hong and Pacific Petroleum

Assuming the 90 days trading horizon Song Hong Construction is expected to generate 2.57 times more return on investment than Pacific Petroleum. However, Song Hong is 2.57 times more volatile than Pacific Petroleum Transportation. It trades about 0.07 of its potential returns per unit of risk. Pacific Petroleum Transportation is currently generating about -0.07 per unit of risk. If you would invest  728,684  in Song Hong Construction on September 5, 2024 and sell it today you would earn a total of  61,316  from holding Song Hong Construction or generate 8.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	70.31%
Values	Daily Returns

Song Hong Construction  vs.  Pacific Petroleum Transportati

Song Hong Construction

Risk-Adjusted Performance

5 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Song Hong Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Song Hong displayed solid returns over the last few months and may actually be approaching a breakup point.

Pacific Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Song Hong and Pacific Petroleum

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

The idea behind Song Hong Construction and Pacific Petroleum Transportation 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.