Correlation Between Vietnam Dairy and CMC Corp

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

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

Diversification Opportunities for Vietnam Dairy and CMC Corp

-0.54

Correlation Coefficient

Vietnam Dairy  CMC Corp

Excellent diversification

The 3 months correlation between Vietnam and CMC is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Vietnam Dairy Products and CMC Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Corp and Vietnam Dairy 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 Dairy Products are associated (or correlated) with CMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Corp has no effect on the direction of Vietnam Dairy i.e., Vietnam Dairy and CMC Corp go up and down completely randomly.

Pair Corralation between Vietnam Dairy and CMC Corp

Assuming the 90 days trading horizon Vietnam Dairy Products is expected to generate 0.47 times more return on investment than CMC Corp. However, Vietnam Dairy Products is 2.14 times less risky than CMC Corp. It trades about -0.2 of its potential returns per unit of risk. CMC Corp is currently generating about -0.32 per unit of risk. If you would invest  6,370,078  in Vietnam Dairy Products on October 12, 2024 and sell it today you would lose (200,078) from holding Vietnam Dairy Products or give up 3.14% of portfolio value over 90 days.

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

Vietnam Dairy Products  vs.  CMC Corp

Vietnam Dairy Products

Risk-Adjusted Performance

0 of 100

Very Weak

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

CMC Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMC Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, CMC Corp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vietnam Dairy and CMC Corp

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

The idea behind Vietnam Dairy Products and CMC Corp 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.