Correlation Between Brown Forman and Thai Beverage

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

By analyzing existing cross correlation between Brown Forman and Thai Beverage Public, you can compare the effects of market volatilities on Brown Forman and Thai Beverage 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 Brown Forman with a short position of Thai Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brown Forman and Thai Beverage.

Diversification Opportunities for Brown Forman and Thai Beverage

0.15

Correlation Coefficient

Brown Forman  Thai Beverage

Average diversification

The 3 months correlation between Brown and Thai is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Brown Forman and Thai Beverage Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Beverage Public and Brown Forman 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 Brown Forman are associated (or correlated) with Thai Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Beverage Public has no effect on the direction of Brown Forman i.e., Brown Forman and Thai Beverage go up and down completely randomly.

Pair Corralation between Brown Forman and Thai Beverage

Given the investment horizon of 90 days Brown Forman is expected to under-perform the Thai Beverage. But the stock apears to be less risky and, when comparing its historical volatility, Brown Forman is 4.1 times less risky than Thai Beverage. The stock trades about -0.05 of its potential returns per unit of risk. The Thai Beverage Public is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  37.00  in Thai Beverage Public on September 19, 2024 and sell it today you would earn a total of  4.00  from holding Thai Beverage Public or generate 10.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.55%
Values	Daily Returns

Brown Forman  vs.  Thai Beverage Public

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Thai Beverage Public

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Beverage Public are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Thai Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brown Forman and Thai Beverage

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

The idea behind Brown Forman and Thai Beverage Public 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.