Correlation Between Song Hong and Binh Minh

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

By analyzing existing cross correlation between Song Hong Aluminum and Binh Minh Plastics, you can compare the effects of market volatilities on Song Hong and Binh Minh 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 Binh Minh. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Hong and Binh Minh.

Diversification Opportunities for Song Hong and Binh Minh

-0.59

Correlation Coefficient

Song Hong  Binh Minh

Excellent diversification

The 3 months correlation between Song and Binh is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Song Hong Aluminum and Binh Minh Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Binh Minh Plastics 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 Aluminum are associated (or correlated) with Binh Minh. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Binh Minh Plastics has no effect on the direction of Song Hong i.e., Song Hong and Binh Minh go up and down completely randomly.

Pair Corralation between Song Hong and Binh Minh

Assuming the 90 days trading horizon Song Hong Aluminum is expected to generate 2.22 times more return on investment than Binh Minh. However, Song Hong is 2.22 times more volatile than Binh Minh Plastics. It trades about 0.1 of its potential returns per unit of risk. Binh Minh Plastics is currently generating about -0.03 per unit of risk. If you would invest  440,000  in Song Hong Aluminum on December 19, 2024 and sell it today you would earn a total of  90,000  from holding Song Hong Aluminum or generate 20.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Song Hong Aluminum  vs.  Binh Minh Plastics

Song Hong Aluminum

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Song Hong Aluminum are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Song Hong displayed solid returns over the last few months and may actually be approaching a breakup point.

Binh Minh Plastics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Binh Minh Plastics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Binh Minh 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 Binh Minh

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

The idea behind Song Hong Aluminum and Binh Minh 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.