Correlation Between China BlueChemical and Thai Beverage

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

By analyzing existing cross correlation between China BlueChemical and Thai Beverage Public, you can compare the effects of market volatilities on China BlueChemical and Thai Beverage 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 China BlueChemical with a short position of Thai Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of China BlueChemical and Thai Beverage.

Diversification Opportunities for China BlueChemical and Thai Beverage

0.39

Correlation Coefficient

China BlueChemical  Thai Beverage

Weak diversification

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

Pair Corralation between China BlueChemical and Thai Beverage

Assuming the 90 days horizon China BlueChemical is expected to generate 2.74 times less return on investment than Thai Beverage. But when comparing it to its historical volatility, China BlueChemical is 1.62 times less risky than Thai Beverage. It trades about 0.04 of its potential returns per unit of risk. Thai Beverage Public is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Thai Beverage Public on October 9, 2024 and sell it today you would earn a total of  19.00  from holding Thai Beverage Public or generate 90.48% return on investment over 90 days.

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

China BlueChemical  vs.  Thai Beverage Public

China BlueChemical

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China BlueChemical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China BlueChemical reported solid returns over the last few months and may actually be approaching a breakup point.

Thai Beverage Public

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Beverage Public are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Thai Beverage reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China BlueChemical and Thai Beverage

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

The idea behind China BlueChemical and Thai Beverage 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.