Correlation Between Song Hong and Ba Ria

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

Diversification Opportunities for Song Hong and Ba Ria

0.74

Correlation Coefficient

Song Hong  Ba Ria

Poor diversification

The 3 months correlation between Song and BTP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Song Hong Aluminum and Ba Ria Thermal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ba Ria Thermal 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 Ba Ria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ba Ria Thermal has no effect on the direction of Song Hong i.e., Song Hong and Ba Ria go up and down completely randomly.

Pair Corralation between Song Hong and Ba Ria

Assuming the 90 days trading horizon Song Hong Aluminum is expected to generate 5.62 times more return on investment than Ba Ria. However, Song Hong is 5.62 times more volatile than Ba Ria Thermal. It trades about 0.1 of its potential returns per unit of risk. Ba Ria Thermal is currently generating about 0.06 per unit of risk. If you would invest  450,000  in Song Hong Aluminum on December 20, 2024 and sell it today you would earn a total of  90,000  from holding Song Hong Aluminum or generate 20.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Song Hong Aluminum  vs.  Ba Ria Thermal

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.

Ba Ria Thermal

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ba Ria Thermal are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Ba Ria 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 Ba Ria

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

The idea behind Song Hong Aluminum and Ba Ria Thermal 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.