Correlation Between Erawan and NEP Realty

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

Diversification Opportunities for Erawan and NEP Realty

0.39

Correlation Coefficient

Erawan  NEP Realty

Weak diversification

The 3 months correlation between Erawan and NEP is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding The Erawan Group and NEP Realty and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEP Realty 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 NEP Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEP Realty has no effect on the direction of Erawan i.e., Erawan and NEP Realty go up and down completely randomly.

Pair Corralation between Erawan and NEP Realty

Assuming the 90 days trading horizon Erawan is expected to generate 2.24 times less return on investment than NEP Realty. But when comparing it to its historical volatility, The Erawan Group is 2.07 times less risky than NEP Realty. It trades about 0.01 of its potential returns per unit of risk. NEP Realty and is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  26.00  in NEP Realty and on September 16, 2024 and sell it today you would lose (1.00) from holding NEP Realty and or give up 3.85% of portfolio value over 90 days.

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

The Erawan Group  vs.  NEP Realty and

Erawan Group

Risk-Adjusted Performance

0 of 100

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 quite persistent basic indicators, Erawan is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

NEP Realty

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Erawan and NEP Realty

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

The idea behind The Erawan Group and NEP Realty and 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.