Correlation Between Vietnam Petroleum and South Basic

Can any of the company-specific risk be diversified away by investing in both Vietnam Petroleum 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 Vietnam Petroleum and South Basic 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 South Basic Chemicals, you can compare the effects of market volatilities on Vietnam Petroleum 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 Vietnam Petroleum with a short position of South Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vietnam Petroleum and South Basic.

Diversification Opportunities for Vietnam Petroleum and South Basic

0.43

Correlation Coefficient

Vietnam Petroleum  South Basic

Very weak diversification

The 3 months correlation between Vietnam and South is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Vietnam Petroleum Transport 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 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 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 Vietnam Petroleum i.e., Vietnam Petroleum and South Basic go up and down completely randomly.

Pair Corralation between Vietnam Petroleum and South Basic

Assuming the 90 days trading horizon Vietnam Petroleum Transport is expected to generate 0.41 times more return on investment than South Basic. However, Vietnam Petroleum Transport is 2.42 times less risky than South Basic. It trades about 0.0 of its potential returns per unit of risk. South Basic Chemicals is currently generating about -0.02 per unit of risk. If you would invest  1,475,000  in Vietnam Petroleum Transport on September 15, 2024 and sell it today you would lose (40,000) from holding Vietnam Petroleum Transport or give up 2.71% of portfolio value over 90 days.

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

Vietnam Petroleum Transport  vs.  South Basic Chemicals

Vietnam Petroleum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vietnam Petroleum Transport are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vietnam Petroleum displayed solid returns over the last few months and may actually be approaching a breakup point.

South Basic Chemicals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in South Basic Chemicals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, South Basic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vietnam Petroleum and South Basic

The main advantage of trading using opposite Vietnam Petroleum and South Basic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vietnam Petroleum 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 Vietnam Petroleum Transport 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.