Correlation Between Erawan and Quality Construction

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

Diversification Opportunities for Erawan and Quality Construction

0.22

Correlation Coefficient

Erawan  Quality Construction

Modest diversification

The 3 months correlation between Erawan and Quality is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding The Erawan Group and Quality Construction Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quality Construction 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 Quality Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quality Construction has no effect on the direction of Erawan i.e., Erawan and Quality Construction go up and down completely randomly.

Pair Corralation between Erawan and Quality Construction

Assuming the 90 days trading horizon The Erawan Group is expected to generate 1.65 times more return on investment than Quality Construction. However, Erawan is 1.65 times more volatile than Quality Construction Products. It trades about 0.01 of its potential returns per unit of risk. Quality Construction Products is currently generating about -0.24 per unit of risk. If you would invest  394.00  in The Erawan Group on September 17, 2024 and sell it today you would lose (2.00) from holding The Erawan Group or give up 0.51% 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.  Quality Construction Products

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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Quality Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quality Construction Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Erawan and Quality Construction

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

The idea behind The Erawan Group and Quality Construction Products 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.