Correlation Between Erawan and MCS Steel

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

Diversification Opportunities for Erawan and MCS Steel

-0.41

Correlation Coefficient

Erawan  MCS Steel

Very good diversification

The 3 months correlation between Erawan and MCS is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding The Erawan Group and MCS Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCS Steel 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 MCS Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCS Steel Public has no effect on the direction of Erawan i.e., Erawan and MCS Steel go up and down completely randomly.

Pair Corralation between Erawan and MCS Steel

Assuming the 90 days trading horizon The Erawan Group is expected to under-perform the MCS Steel. In addition to that, Erawan is 1.44 times more volatile than MCS Steel Public. It trades about -0.17 of its total potential returns per unit of risk. MCS Steel Public is currently generating about 0.08 per unit of volatility. If you would invest  670.00  in MCS Steel Public on December 28, 2024 and sell it today you would earn a total of  50.00  from holding MCS Steel Public or generate 7.46% return on investment over 90 days.

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

The Erawan Group  vs.  MCS Steel Public

Erawan Group

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

MCS Steel Public

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MCS Steel Public are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, MCS Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Erawan and MCS Steel

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

The idea behind The Erawan Group and MCS Steel 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.