Correlation Between Long An and Sao Ta

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

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

Diversification Opportunities for Long An and Sao Ta

0.4

Correlation Coefficient

Long An  Sao Ta

Very weak diversification

The 3 months correlation between Long and Sao is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Long An Food and Sao Ta Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sao Ta Foods and Long An 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 Long An Food are associated (or correlated) with Sao Ta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sao Ta Foods has no effect on the direction of Long An i.e., Long An and Sao Ta go up and down completely randomly.

Pair Corralation between Long An and Sao Ta

Assuming the 90 days trading horizon Long An Food is expected to generate 2.49 times more return on investment than Sao Ta. However, Long An is 2.49 times more volatile than Sao Ta Foods. It trades about 0.11 of its potential returns per unit of risk. Sao Ta Foods is currently generating about -0.02 per unit of risk. If you would invest  1,692,088  in Long An Food on December 26, 2024 and sell it today you would earn a total of  242,912  from holding Long An Food or generate 14.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.55%
Values	Daily Returns

Long An Food  vs.  Sao Ta Foods

Long An Food

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Long An Food are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Long An displayed solid returns over the last few months and may actually be approaching a breakup point.

Sao Ta Foods

Risk-Adjusted Performance

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.

Pair Trading with Long An and Sao Ta

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

The idea behind Long An Food and Sao Ta Foods 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.