Correlation Between Vietnam Petroleum and CMC Investment

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

By analyzing existing cross correlation between Vietnam Petroleum Transport and CMC Investment JSC, you can compare the effects of market volatilities on Vietnam Petroleum and CMC Investment 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 Vietnam Petroleum with a short position of CMC Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vietnam Petroleum and CMC Investment.

Diversification Opportunities for Vietnam Petroleum and CMC Investment

-0.65

Correlation Coefficient

Vietnam Petroleum  CMC Investment

Excellent diversification

The 3 months correlation between Vietnam and CMC is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vietnam Petroleum Transport and CMC Investment JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Investment JSC and Vietnam Petroleum 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 Vietnam Petroleum Transport are associated (or correlated) with CMC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Investment JSC has no effect on the direction of Vietnam Petroleum i.e., Vietnam Petroleum and CMC Investment go up and down completely randomly.

Pair Corralation between Vietnam Petroleum and CMC Investment

Assuming the 90 days trading horizon Vietnam Petroleum is expected to generate 2.08 times less return on investment than CMC Investment. But when comparing it to its historical volatility, Vietnam Petroleum Transport is 2.43 times less risky than CMC Investment. It trades about 0.06 of its potential returns per unit of risk. CMC Investment JSC is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  500,000  in CMC Investment JSC on October 11, 2024 and sell it today you would earn a total of  230,000  from holding CMC Investment JSC or generate 46.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	69.11%
Values	Daily Returns

Vietnam Petroleum Transport  vs.  CMC Investment JSC

Vietnam Petroleum

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vietnam Petroleum Transport are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vietnam Petroleum is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CMC Investment JSC

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Investment JSC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, CMC Investment displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vietnam Petroleum and CMC Investment

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

The idea behind Vietnam Petroleum Transport and CMC Investment JSC 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.