Correlation Between Erawan and Megachem Public

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

Diversification Opportunities for Erawan and Megachem Public

0.87

Correlation Coefficient

Erawan  Megachem Public

Very poor diversification

The 3 months correlation between Erawan and Megachem is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding The Erawan Group and Megachem Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megachem Public 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 Megachem Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megachem Public has no effect on the direction of Erawan i.e., Erawan and Megachem Public go up and down completely randomly.

Pair Corralation between Erawan and Megachem Public

Assuming the 90 days trading horizon The Erawan Group is expected to generate 1.15 times more return on investment than Megachem Public. However, Erawan is 1.15 times more volatile than Megachem Public. It trades about 0.05 of its potential returns per unit of risk. Megachem Public is currently generating about -0.1 per unit of risk. If you would invest  374.00  in The Erawan Group on September 4, 2024 and sell it today you would earn a total of  22.00  from holding The Erawan Group or generate 5.88% return on investment over 90 days.

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

The Erawan Group  vs.  Megachem Public

Erawan Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Erawan Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Erawan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Megachem Public

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Megachem Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Erawan and Megachem Public

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

The idea behind The Erawan Group and Megachem 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.