Correlation Between THAI BEVERAGE and NRG ENERGY

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

By analyzing existing cross correlation between THAI BEVERAGE and NRG ENERGY, you can compare the effects of market volatilities on THAI BEVERAGE and NRG ENERGY 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 THAI BEVERAGE with a short position of NRG ENERGY. Check out your portfolio center. Please also check ongoing floating volatility patterns of THAI BEVERAGE and NRG ENERGY.

Diversification Opportunities for THAI BEVERAGE and NRG ENERGY

0.38

Correlation Coefficient

THAI BEVERAGE  NRG ENERGY

Weak diversification

The 3 months correlation between THAI and NRG is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding THAI BEVERAGE and NRG ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG ENERGY and THAI BEVERAGE 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 THAI BEVERAGE are associated (or correlated) with NRG ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRG ENERGY has no effect on the direction of THAI BEVERAGE i.e., THAI BEVERAGE and NRG ENERGY go up and down completely randomly.

Pair Corralation between THAI BEVERAGE and NRG ENERGY

Assuming the 90 days trading horizon THAI BEVERAGE is expected to generate 16.35 times less return on investment than NRG ENERGY. But when comparing it to its historical volatility, THAI BEVERAGE is 1.08 times less risky than NRG ENERGY. It trades about 0.01 of its potential returns per unit of risk. NRG ENERGY is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  8,186  in NRG ENERGY on October 24, 2024 and sell it today you would earn a total of  2,069  from holding NRG ENERGY or generate 25.27% return on investment over 90 days.

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

THAI BEVERAGE  vs.  NRG ENERGY

THAI BEVERAGE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days THAI BEVERAGE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, THAI BEVERAGE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

NRG ENERGY

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG ENERGY are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NRG ENERGY unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with THAI BEVERAGE and NRG ENERGY

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

The idea behind THAI BEVERAGE and NRG ENERGY 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.