Correlation Between Vietnam Dairy and Cotec Construction

Can any of the company-specific risk be diversified away by investing in both Vietnam Dairy and Cotec Construction 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 Cotec Construction 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 Cotec Construction JSC, you can compare the effects of market volatilities on Vietnam Dairy and Cotec Construction 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 Cotec Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vietnam Dairy and Cotec Construction.

Diversification Opportunities for Vietnam Dairy and Cotec Construction

-0.17

Correlation Coefficient

Vietnam Dairy  Cotec Construction

Good diversification

The 3 months correlation between Vietnam and Cotec is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Vietnam Dairy Products and Cotec Construction JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cotec Construction JSC 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 Cotec Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cotec Construction JSC has no effect on the direction of Vietnam Dairy i.e., Vietnam Dairy and Cotec Construction go up and down completely randomly.

Pair Corralation between Vietnam Dairy and Cotec Construction

Assuming the 90 days trading horizon Vietnam Dairy Products is expected to under-perform the Cotec Construction. But the stock apears to be less risky and, when comparing its historical volatility, Vietnam Dairy Products is 2.46 times less risky than Cotec Construction. The stock trades about -0.04 of its potential returns per unit of risk. The Cotec Construction JSC is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6,650,000  in Cotec Construction JSC on December 21, 2024 and sell it today you would earn a total of  2,040,000  from holding Cotec Construction JSC or generate 30.68% return on investment over 90 days.

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

Vietnam Dairy Products  vs.  Cotec Construction JSC

Vietnam Dairy Products

Risk-Adjusted Performance

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 very healthy primary indicators, Vietnam Dairy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cotec Construction JSC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cotec Construction JSC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cotec Construction displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vietnam Dairy and Cotec Construction

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

The idea behind Vietnam Dairy Products and Cotec Construction 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.