Correlation Between Petrovietnam Drilling and South Basic

Can any of the company-specific risk be diversified away by investing in both Petrovietnam Drilling and South Basic 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 Petrovietnam Drilling and South Basic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Petrovietnam Drilling Mud and South Basic Chemicals, you can compare the effects of market volatilities on Petrovietnam Drilling and South Basic 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 Petrovietnam Drilling with a short position of South Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrovietnam Drilling and South Basic.

Diversification Opportunities for Petrovietnam Drilling and South Basic

0.35

Correlation Coefficient

Petrovietnam Drilling  South Basic

Weak diversification

The 3 months correlation between Petrovietnam and South is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Petrovietnam Drilling Mud and South Basic Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Basic Chemicals and Petrovietnam Drilling 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 Petrovietnam Drilling Mud are associated (or correlated) with South Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Basic Chemicals has no effect on the direction of Petrovietnam Drilling i.e., Petrovietnam Drilling and South Basic go up and down completely randomly.

Pair Corralation between Petrovietnam Drilling and South Basic

Assuming the 90 days trading horizon Petrovietnam Drilling Mud is expected to generate 0.68 times more return on investment than South Basic. However, Petrovietnam Drilling Mud is 1.47 times less risky than South Basic. It trades about 0.39 of its potential returns per unit of risk. South Basic Chemicals is currently generating about 0.07 per unit of risk. If you would invest  1,030,000  in Petrovietnam Drilling Mud on December 4, 2024 and sell it today you would earn a total of  120,000  from holding Petrovietnam Drilling Mud or generate 11.65% return on investment over 90 days.

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

Petrovietnam Drilling Mud  vs.  South Basic Chemicals

Petrovietnam Drilling Mud

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Petrovietnam Drilling Mud are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Petrovietnam Drilling displayed solid returns over the last few months and may actually be approaching a breakup point.

South Basic Chemicals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South Basic Chemicals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, South Basic displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petrovietnam Drilling and South Basic

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

The idea behind Petrovietnam Drilling Mud and South Basic Chemicals 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.