Correlation Between Erawan and Thai Oil

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

Diversification Opportunities for Erawan and Thai Oil

ErawanThaiDiversified AwayErawanThaiDiversified Away100%
0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Erawan and Thai is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding The Erawan Group and Thai Oil Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Oil 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 Thai Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Oil Public has no effect on the direction of Erawan i.e., Erawan and Thai Oil go up and down completely randomly.

Pair Corralation between Erawan and Thai Oil

Assuming the 90 days trading horizon The Erawan Group is expected to under-perform the Thai Oil. But the stock apears to be less risky and, when comparing its historical volatility, The Erawan Group is 59.4 times less risky than Thai Oil. The stock trades about -0.16 of its potential returns per unit of risk. The Thai Oil Public is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,625  in Thai Oil Public on October 16, 2024 and sell it today you would lose (800.00) from holding Thai Oil Public or give up 17.3% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy88.14%
ValuesDaily Returns

The Erawan Group  vs.  Thai Oil Public

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -20-10010203040
JavaScript chart by amCharts 3.21.15ERW TOP-R
       Timeline  
Erawan Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan3.23.43.63.844.24.4
Thai Oil Public 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
OK
Over the last 90 days Thai Oil Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak fundamental drivers, Thai Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Erawan and Thai Oil Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.81-2.85-1.9-0.94-0.01350.81.612.423.24 0.060.070.080.090.10
JavaScript chart by amCharts 3.21.15ERW TOP-R
       Returns  

Pair Trading with Erawan and Thai Oil

The main advantage of trading using opposite Erawan and Thai Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Erawan position performs unexpectedly, Thai Oil 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 Oil will offset losses from the drop in Thai Oil's long position.
The idea behind The Erawan Group and Thai Oil 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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