Correlation Between Nam Kim and Pha Le

Can any of the company-specific risk be diversified away by investing in both Nam Kim and Pha Le 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 Nam Kim and Pha Le into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nam Kim Steel and Pha Le Plastics, you can compare the effects of market volatilities on Nam Kim and Pha Le 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 Nam Kim with a short position of Pha Le. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nam Kim and Pha Le.

Diversification Opportunities for Nam Kim and Pha Le

0.25

Correlation Coefficient

Nam Kim  Pha Le

Modest diversification

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

Pair Corralation between Nam Kim and Pha Le

Assuming the 90 days trading horizon Nam Kim Steel is expected to under-perform the Pha Le. In addition to that, Nam Kim is 1.42 times more volatile than Pha Le Plastics. It trades about -0.27 of its total potential returns per unit of risk. Pha Le Plastics is currently generating about 0.08 per unit of volatility. If you would invest  466,000  in Pha Le Plastics on October 7, 2024 and sell it today you would earn a total of  34,000  from holding Pha Le Plastics or generate 7.3% return on investment over 90 days.

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

Nam Kim Steel  vs.  Pha Le Plastics

Nam Kim Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nam Kim Steel 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.

Pha Le Plastics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pha Le Plastics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Pha Le is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nam Kim and Pha Le

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

The idea behind Nam Kim Steel and Pha Le Plastics 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.