Correlation Between Charoen Pokphand and Thai Oil

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

By analyzing existing cross correlation between Charoen Pokphand Foods and Thai Oil Public, you can compare the effects of market volatilities on Charoen Pokphand and Thai Oil 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 Charoen Pokphand with a short position of Thai Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Charoen Pokphand and Thai Oil.

Diversification Opportunities for Charoen Pokphand and Thai Oil

-0.08

Correlation Coefficient

Charoen Pokphand  Thai Oil

Good diversification

The 3 months correlation between Charoen and Thai is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Charoen Pokphand Foods and Thai Oil Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Oil Public and Charoen Pokphand 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 Charoen Pokphand Foods are associated (or correlated) with Thai Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Oil Public has no effect on the direction of Charoen Pokphand i.e., Charoen Pokphand and Thai Oil go up and down completely randomly.

Pair Corralation between Charoen Pokphand and Thai Oil

Assuming the 90 days trading horizon Charoen Pokphand Foods is expected to under-perform the Thai Oil. But the stock apears to be less risky and, when comparing its historical volatility, Charoen Pokphand Foods is 101.89 times less risky than Thai Oil. The stock trades about -0.05 of its potential returns per unit of risk. The Thai Oil Public is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,325  in Thai Oil Public on September 4, 2024 and sell it today you would lose (1,575) from holding Thai Oil Public or give up 29.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Charoen Pokphand Foods  vs.  Thai Oil Public

Charoen Pokphand Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charoen Pokphand Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Charoen Pokphand is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Thai Oil Public

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Oil Public are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Thai Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charoen Pokphand and Thai Oil

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

The idea behind Charoen Pokphand Foods and Thai Oil Public 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.