Correlation Between Eastern Technical and Airports

Can any of the company-specific risk be diversified away by investing in both Eastern Technical and Airports 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 Eastern Technical and Airports into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eastern Technical Engineering and Airports of Thailand, you can compare the effects of market volatilities on Eastern Technical and Airports 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 Eastern Technical with a short position of Airports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Technical and Airports.

Diversification Opportunities for Eastern Technical and Airports

0.68

Correlation Coefficient

Eastern Technical  Airports

Poor diversification

The 3 months correlation between Eastern and Airports is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Technical Engineering and Airports of Thailand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airports of Thailand and Eastern Technical 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 Eastern Technical Engineering are associated (or correlated) with Airports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airports of Thailand has no effect on the direction of Eastern Technical i.e., Eastern Technical and Airports go up and down completely randomly.

Pair Corralation between Eastern Technical and Airports

Assuming the 90 days trading horizon Eastern Technical is expected to generate 2.0 times less return on investment than Airports. But when comparing it to its historical volatility, Eastern Technical Engineering is 1.41 times less risky than Airports. It trades about 0.04 of its potential returns per unit of risk. Airports of Thailand is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,412  in Airports of Thailand on September 5, 2024 and sell it today you would lose (1,212) from holding Airports of Thailand or give up 16.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Eastern Technical Engineering  vs.  Airports of Thailand

Eastern Technical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Technical Engineering 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 technical and fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Airports of Thailand

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Airports of Thailand are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Airports sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastern Technical and Airports

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

The idea behind Eastern Technical Engineering and Airports of Thailand 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.