Correlation Between Erawan and Indorama Ventures

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

By analyzing existing cross correlation between The Erawan Group and Indorama Ventures PCL, you can compare the effects of market volatilities on Erawan and Indorama Ventures 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 Erawan with a short position of Indorama Ventures. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erawan and Indorama Ventures.

Diversification Opportunities for Erawan and Indorama Ventures

-0.15

Correlation Coefficient

Erawan  Indorama Ventures

Good diversification

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

Pair Corralation between Erawan and Indorama Ventures

Assuming the 90 days trading horizon Erawan is expected to generate 16.08 times less return on investment than Indorama Ventures. In addition to that, Erawan is 1.1 times more volatile than Indorama Ventures PCL. It trades about 0.01 of its total potential returns per unit of risk. Indorama Ventures PCL is currently generating about 0.12 per unit of volatility. If you would invest  2,374  in Indorama Ventures PCL on September 15, 2024 and sell it today you would earn a total of  326.00  from holding Indorama Ventures PCL or generate 13.73% return on investment over 90 days.

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

The Erawan Group  vs.  Indorama Ventures PCL

Erawan Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Indorama Ventures PCL

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Indorama Ventures PCL are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Indorama Ventures disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erawan and Indorama Ventures

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

The idea behind The Erawan Group and Indorama Ventures PCL 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.