Correlation Between National Beverage and Thai Beverage

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

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

Diversification Opportunities for National Beverage and Thai Beverage

0.68

Correlation Coefficient

National Beverage  Thai Beverage

Poor diversification

The 3 months correlation between National and Thai is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Thai Beverage Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Beverage Public and National Beverage 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 National Beverage Corp are associated (or correlated) with Thai Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Beverage Public has no effect on the direction of National Beverage i.e., National Beverage and Thai Beverage go up and down completely randomly.

Pair Corralation between National Beverage and Thai Beverage

Assuming the 90 days horizon National Beverage Corp is expected to under-perform the Thai Beverage. But the stock apears to be less risky and, when comparing its historical volatility, National Beverage Corp is 2.01 times less risky than Thai Beverage. The stock trades about -0.08 of its potential returns per unit of risk. The Thai Beverage Public is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  37.00  in Thai Beverage Public on December 29, 2024 and sell it today you would lose (2.00) from holding Thai Beverage Public or give up 5.41% of portfolio value over 90 days.

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

National Beverage Corp  vs.  Thai Beverage Public

National Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Thai Beverage Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thai Beverage Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Thai Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with National Beverage and Thai Beverage

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

The idea behind National Beverage Corp and Thai Beverage 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.