Correlation Between Song Hong and Van Dien

Can any of the company-specific risk be diversified away by investing in both Song Hong and Van Dien 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 Van Dien 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 Van Dien Fused, you can compare the effects of market volatilities on Song Hong and Van Dien 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 Van Dien. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Hong and Van Dien.

Diversification Opportunities for Song Hong and Van Dien

-0.25

Correlation Coefficient

Song Hong  Van Dien

Very good diversification

The 3 months correlation between Song and Van is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Song Hong Construction and Van Dien Fused in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Van Dien Fused 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 Van Dien. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Van Dien Fused has no effect on the direction of Song Hong i.e., Song Hong and Van Dien go up and down completely randomly.

Pair Corralation between Song Hong and Van Dien

Assuming the 90 days trading horizon Song Hong Construction is expected to generate 0.57 times more return on investment than Van Dien. However, Song Hong Construction is 1.75 times less risky than Van Dien. It trades about 0.12 of its potential returns per unit of risk. Van Dien Fused is currently generating about -0.07 per unit of risk. If you would invest  740,000  in Song Hong Construction on October 12, 2024 and sell it today you would earn a total of  30,000  from holding Song Hong Construction or generate 4.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.67%
Values	Daily Returns

Song Hong Construction  vs.  Van Dien Fused

Song Hong Construction

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Song Hong Construction has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Van Dien Fused

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Van Dien Fused 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 technical and fundamental indicators 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.

Pair Trading with Song Hong and Van Dien

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

The idea behind Song Hong Construction and Van Dien Fused 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.