Correlation Between SAF Special and SET50 Index

Can any of the company-specific risk be diversified away by investing in both SAF Special and SET50 Index 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 SAF Special and SET50 Index into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SAF Special Steel and SET50 Index, you can compare the effects of market volatilities on SAF Special and SET50 Index 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 SAF Special with a short position of SET50 Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAF Special and SET50 Index.

Diversification Opportunities for SAF Special and SET50 Index

0.69

Correlation Coefficient

SAF Special  SET50 Index

Poor diversification

The 3 months correlation between SAF and SET50 is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding SAF Special Steel and SET50 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SET50 Index and SAF Special 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 SAF Special Steel are associated (or correlated) with SET50 Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SET50 Index has no effect on the direction of SAF Special i.e., SAF Special and SET50 Index go up and down completely randomly.

Pair Corralation between SAF Special and SET50 Index

Assuming the 90 days trading horizon SAF Special Steel is expected to generate 5.15 times more return on investment than SET50 Index. However, SAF Special is 5.15 times more volatile than SET50 Index. It trades about -0.02 of its potential returns per unit of risk. SET50 Index is currently generating about -0.11 per unit of risk. If you would invest  53.00  in SAF Special Steel on October 23, 2024 and sell it today you would lose (5.00) from holding SAF Special Steel or give up 9.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

SAF Special Steel  vs.  SET50 Index

Pair Trading with SAF Special and SET50 Index

The main advantage of trading using opposite SAF Special and SET50 Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SAF Special position performs unexpectedly, SET50 Index 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 SET50 Index will offset losses from the drop in SET50 Index's long position.

The idea behind SAF Special Steel and SET50 Index 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.