Correlation Between Thai Metal and Thai Coating

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

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

Diversification Opportunities for Thai Metal and Thai Coating

0.03

Correlation Coefficient

Thai Metal  Thai Coating

Significant diversification

The 3 months correlation between Thai and Thai is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Thai Metal Drum and Thai Coating Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Coating Industrial and Thai Metal 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 Metal Drum are associated (or correlated) with Thai Coating. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Coating Industrial has no effect on the direction of Thai Metal i.e., Thai Metal and Thai Coating go up and down completely randomly.

Pair Corralation between Thai Metal and Thai Coating

Assuming the 90 days trading horizon Thai Metal Drum is expected to under-perform the Thai Coating. But the stock apears to be less risky and, when comparing its historical volatility, Thai Metal Drum is 7.97 times less risky than Thai Coating. The stock trades about -0.05 of its potential returns per unit of risk. The Thai Coating Industrial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,400  in Thai Coating Industrial on September 5, 2024 and sell it today you would earn a total of  10.00  from holding Thai Coating Industrial or generate 0.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Thai Metal Drum  vs.  Thai Coating Industrial

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.

Thai Coating Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thai Coating Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Thai Coating is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Thai Metal and Thai Coating

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

The idea behind Thai Metal Drum and Thai Coating Industrial 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.