Correlation Between Pha Le and Dong A

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

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

Diversification Opportunities for Pha Le and Dong A

0.22

Correlation Coefficient

Pha Le  Dong A

Modest diversification

The 3 months correlation between Pha and Dong is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Pha Le Plastics and Dong A Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong A Hotel and Pha Le 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 Pha Le Plastics are associated (or correlated) with Dong A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong A Hotel has no effect on the direction of Pha Le i.e., Pha Le and Dong A go up and down completely randomly.

Pair Corralation between Pha Le and Dong A

Assuming the 90 days trading horizon Pha Le is expected to generate 1.69 times less return on investment than Dong A. But when comparing it to its historical volatility, Pha Le Plastics is 1.07 times less risky than Dong A. It trades about 0.11 of its potential returns per unit of risk. Dong A Hotel is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  306,000  in Dong A Hotel on October 6, 2024 and sell it today you would earn a total of  55,000  from holding Dong A Hotel or generate 17.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.73%
Values	Daily Returns

Pha Le Plastics  vs.  Dong A Hotel

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 current stock price disarray, may contribute to short-term losses for the investors.

Dong A Hotel

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dong A Hotel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Dong A may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Pha Le and Dong A

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

The idea behind Pha Le Plastics and Dong A Hotel 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.