Correlation Between Erawan and Thai Metal

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

Diversification Opportunities for Erawan and Thai Metal

-0.12

Correlation Coefficient

Erawan  Thai Metal

Good diversification

The 3 months correlation between Erawan and Thai is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding The Erawan Group and Thai Metal Drum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Metal Drum 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 Thai Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Metal Drum has no effect on the direction of Erawan i.e., Erawan and Thai Metal go up and down completely randomly.

Pair Corralation between Erawan and Thai Metal

Assuming the 90 days trading horizon Erawan is expected to generate 1030.22 times less return on investment than Thai Metal. But when comparing it to its historical volatility, The Erawan Group is 59.59 times less risky than Thai Metal. It trades about 0.01 of its potential returns per unit of risk. Thai Metal Drum is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,440  in Thai Metal Drum on September 16, 2024 and sell it today you would earn a total of  10.00  from holding Thai Metal Drum or generate 0.41% 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.  Thai Metal Drum

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 current stock price mess, may contribute to short-term losses for the institutional investors.

Thai Metal Drum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Metal Drum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Thai Metal disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erawan and Thai Metal

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

The idea behind The Erawan Group and Thai Metal Drum 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.