Correlation Between Thai Metal and Eastern Commercial

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

By analyzing existing cross correlation between Thai Metal Drum and Eastern Commercial Leasing, you can compare the effects of market volatilities on Thai Metal and Eastern Commercial 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 Metal with a short position of Eastern Commercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thai Metal and Eastern Commercial.

Diversification Opportunities for Thai Metal and Eastern Commercial

0.03

Correlation Coefficient

Thai Metal  Eastern Commercial

Significant diversification

The 3 months correlation between Thai and Eastern is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Thai Metal Drum and Eastern Commercial Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Commercial and Thai Metal 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 Metal Drum are associated (or correlated) with Eastern Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Commercial has no effect on the direction of Thai Metal i.e., Thai Metal and Eastern Commercial go up and down completely randomly.

Pair Corralation between Thai Metal and Eastern Commercial

Assuming the 90 days trading horizon Thai Metal Drum is expected to generate 0.27 times more return on investment than Eastern Commercial. However, Thai Metal Drum is 3.65 times less risky than Eastern Commercial. It trades about -0.04 of its potential returns per unit of risk. Eastern Commercial Leasing is currently generating about -0.01 per unit of risk. If you would invest  2,470  in Thai Metal Drum on October 7, 2024 and sell it today you would lose (40.00) from holding Thai Metal Drum or give up 1.62% of portfolio value over 90 days.

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

Thai Metal Drum  vs.  Eastern Commercial Leasing

Thai Metal Drum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Metal Drum are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Thai Metal disclosed solid returns over the last few months and may actually be approaching a breakup point.

Eastern Commercial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Thai Metal and Eastern Commercial

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

The idea behind Thai Metal Drum and Eastern Commercial Leasing 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.