Correlation Between North East and Thai Life

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

By analyzing existing cross correlation between North East Rubbers and Thai Life Insurance, you can compare the effects of market volatilities on North East and Thai Life 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 North East with a short position of Thai Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of North East and Thai Life.

Diversification Opportunities for North East and Thai Life

0.43

Correlation Coefficient

North East  Thai Life

Very weak diversification

The 3 months correlation between North and Thai is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding North East Rubbers and Thai Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Life Insurance and North East 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 North East Rubbers are associated (or correlated) with Thai Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Life Insurance has no effect on the direction of North East i.e., North East and Thai Life go up and down completely randomly.

Pair Corralation between North East and Thai Life

Assuming the 90 days trading horizon North East is expected to generate 2.2 times less return on investment than Thai Life. But when comparing it to its historical volatility, North East Rubbers is 1.52 times less risky than Thai Life. It trades about 0.06 of its potential returns per unit of risk. Thai Life Insurance is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,050  in Thai Life Insurance on December 26, 2024 and sell it today you would earn a total of  120.00  from holding Thai Life Insurance or generate 11.43% return on investment over 90 days.

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

North East Rubbers  vs.  Thai Life Insurance

North East Rubbers

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in North East Rubbers are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, North East is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Thai Life Insurance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Life Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward indicators, Thai Life disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North East and Thai Life

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

The idea behind North East Rubbers and Thai Life Insurance 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.