Correlation Between Thai Vegetable and Thai Metal

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

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

Diversification Opportunities for Thai Vegetable and Thai Metal

-0.16

Correlation Coefficient

Thai Vegetable  Thai Metal

Good diversification

The 3 months correlation between Thai and Thai is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Thai Vegetable Oil 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 Thai Vegetable 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 Thai Vegetable Oil 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 Thai Vegetable i.e., Thai Vegetable and Thai Metal go up and down completely randomly.

Pair Corralation between Thai Vegetable and Thai Metal

Assuming the 90 days trading horizon Thai Vegetable Oil is expected to under-perform the Thai Metal. But the stock apears to be less risky and, when comparing its historical volatility, Thai Vegetable Oil is 123.35 times less risky than Thai Metal. The stock trades about -0.06 of its potential returns per unit of risk. The 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 15, 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

Thai Vegetable Oil  vs.  Thai Metal Drum

Thai Vegetable Oil

Risk-Adjusted Performance

0 of 100

Very Weak

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

Thai Metal Drum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Metal Drum are ranked lower than 9 (%) 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 Thai Vegetable and Thai Metal

The main advantage of trading using opposite Thai Vegetable and Thai Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Thai Vegetable 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 Thai Vegetable Oil 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.