Correlation Between Transport and PetroVietnam Drilling

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

By analyzing existing cross correlation between Transport and Industry and PetroVietnam Drilling Well, you can compare the effects of market volatilities on Transport and PetroVietnam Drilling 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 Transport with a short position of PetroVietnam Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transport and PetroVietnam Drilling.

Diversification Opportunities for Transport and PetroVietnam Drilling

0.64

Correlation Coefficient

Transport  PetroVietnam Drilling

Poor diversification

The 3 months correlation between Transport and PetroVietnam is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Transport and Industry and PetroVietnam Drilling Well in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroVietnam Drilling and Transport 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 Transport and Industry are associated (or correlated) with PetroVietnam Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroVietnam Drilling has no effect on the direction of Transport i.e., Transport and PetroVietnam Drilling go up and down completely randomly.

Pair Corralation between Transport and PetroVietnam Drilling

Assuming the 90 days trading horizon Transport and Industry is expected to under-perform the PetroVietnam Drilling. In addition to that, Transport is 1.08 times more volatile than PetroVietnam Drilling Well. It trades about -0.17 of its total potential returns per unit of risk. PetroVietnam Drilling Well is currently generating about -0.11 per unit of volatility. If you would invest  2,540,000  in PetroVietnam Drilling Well on September 17, 2024 and sell it today you would lose (290,000) from holding PetroVietnam Drilling Well or give up 11.42% of portfolio value over 90 days.

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

Transport and Industry  vs.  PetroVietnam Drilling Well

Transport and Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transport and Industry 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 fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

PetroVietnam Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroVietnam Drilling Well has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Transport and PetroVietnam Drilling

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

The idea behind Transport and Industry and PetroVietnam Drilling Well 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.