Correlation Between Erawan and Dcon Products

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

Diversification Opportunities for Erawan and Dcon Products

0.92

Correlation Coefficient

Erawan  Dcon Products

Almost no diversification

The 3 months correlation between Erawan and Dcon is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding The Erawan Group and Dcon Products Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dcon Products 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 Dcon Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dcon Products Public has no effect on the direction of Erawan i.e., Erawan and Dcon Products go up and down completely randomly.

Pair Corralation between Erawan and Dcon Products

Assuming the 90 days trading horizon The Erawan Group is expected to generate 1.0 times more return on investment than Dcon Products. However, The Erawan Group is 1.0 times less risky than Dcon Products. It trades about 0.08 of its potential returns per unit of risk. Dcon Products Public is currently generating about 0.08 per unit of risk. If you would invest  450.00  in The Erawan Group on September 3, 2024 and sell it today you would lose (50.00) from holding The Erawan Group or give up 11.11% of portfolio value over 90 days.

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

The Erawan Group  vs.  Dcon Products Public

Erawan Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Erawan Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Erawan disclosed solid returns over the last few months and may actually be approaching a breakup point.

Dcon Products Public

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dcon Products Public are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Dcon Products disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erawan and Dcon Products

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

The idea behind The Erawan Group and Dcon Products 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.