Correlation Between Hwa Fong and Bank of Ayudhya

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

By analyzing existing cross correlation between Hwa Fong Rubber and Bank of Ayudhya, you can compare the effects of market volatilities on Hwa Fong and Bank of Ayudhya 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 Hwa Fong with a short position of Bank of Ayudhya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hwa Fong and Bank of Ayudhya.

Diversification Opportunities for Hwa Fong and Bank of Ayudhya

0.66

Correlation Coefficient

Hwa Fong  Bank of Ayudhya

Poor diversification

The 3 months correlation between Hwa and Bank is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Hwa Fong Rubber and Bank of Ayudhya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Ayudhya and Hwa Fong 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 Hwa Fong Rubber are associated (or correlated) with Bank of Ayudhya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Ayudhya has no effect on the direction of Hwa Fong i.e., Hwa Fong and Bank of Ayudhya go up and down completely randomly.

Pair Corralation between Hwa Fong and Bank of Ayudhya

Assuming the 90 days trading horizon Hwa Fong Rubber is expected to generate 0.97 times more return on investment than Bank of Ayudhya. However, Hwa Fong Rubber is 1.03 times less risky than Bank of Ayudhya. It trades about -0.1 of its potential returns per unit of risk. Bank of Ayudhya is currently generating about -0.12 per unit of risk. If you would invest  416.00  in Hwa Fong Rubber on December 21, 2024 and sell it today you would lose (24.00) from holding Hwa Fong Rubber or give up 5.77% of portfolio value over 90 days.

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

Hwa Fong Rubber  vs.  Bank of Ayudhya

Hwa Fong Rubber

Risk-Adjusted Performance

Very Weak

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

Bank of Ayudhya

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Ayudhya has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Hwa Fong and Bank of Ayudhya

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

The idea behind Hwa Fong Rubber and Bank of Ayudhya 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.