Correlation Between Airports and Quality Houses

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

By analyzing existing cross correlation between Airports of Thailand and Quality Houses Property, you can compare the effects of market volatilities on Airports and Quality Houses 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 Airports with a short position of Quality Houses. Check out your portfolio center. Please also check ongoing floating volatility patterns of Airports and Quality Houses.

Diversification Opportunities for Airports and Quality Houses

0.13

Correlation Coefficient

Airports  Quality Houses

Average diversification

The 3 months correlation between Airports and Quality is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Airports of Thailand and Quality Houses Property in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quality Houses Property and Airports 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 Airports of Thailand are associated (or correlated) with Quality Houses. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quality Houses Property has no effect on the direction of Airports i.e., Airports and Quality Houses go up and down completely randomly.

Pair Corralation between Airports and Quality Houses

Assuming the 90 days trading horizon Airports of Thailand is expected to under-perform the Quality Houses. But the stock apears to be less risky and, when comparing its historical volatility, Airports of Thailand is 2.18 times less risky than Quality Houses. The stock trades about -0.02 of its potential returns per unit of risk. The Quality Houses Property is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  438.00  in Quality Houses Property on September 12, 2024 and sell it today you would earn a total of  36.00  from holding Quality Houses Property or generate 8.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Airports of Thailand  vs.  Quality Houses Property

Airports of Thailand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Airports of Thailand has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Airports is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Quality Houses Property

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Quality Houses Property are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. Despite quite conflicting forward-looking signals, Quality Houses may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Airports and Quality Houses

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

The idea behind Airports of Thailand and Quality Houses Property 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.