Correlation Between Krung Thai and Gulf Energy

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

By analyzing existing cross correlation between Krung Thai Bank and Gulf Energy Development, you can compare the effects of market volatilities on Krung Thai and Gulf 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 Krung Thai with a short position of Gulf Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Krung Thai and Gulf Energy.

Diversification Opportunities for Krung Thai and Gulf Energy

0.73

Correlation Coefficient

Krung Thai  Gulf Energy

Poor diversification

The 3 months correlation between Krung and Gulf is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Krung Thai Bank and Gulf Energy Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gulf Energy Development and Krung Thai 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 Krung Thai Bank are associated (or correlated) with Gulf Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gulf Energy Development has no effect on the direction of Krung Thai i.e., Krung Thai and Gulf Energy go up and down completely randomly.

Pair Corralation between Krung Thai and Gulf Energy

Assuming the 90 days trading horizon Krung Thai is expected to generate 3.17 times less return on investment than Gulf Energy. But when comparing it to its historical volatility, Krung Thai Bank is 1.73 times less risky than Gulf Energy. It trades about 0.09 of its potential returns per unit of risk. Gulf Energy Development is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  5,100  in Gulf Energy Development on September 4, 2024 and sell it today you would earn a total of  1,025  from holding Gulf Energy Development or generate 20.1% return on investment over 90 days.

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

Krung Thai Bank  vs.  Gulf Energy Development

Krung Thai Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Krung Thai Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Krung Thai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gulf Energy Development

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Energy Development are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Gulf Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Krung Thai and Gulf Energy

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

The idea behind Krung Thai Bank and Gulf Energy Development 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .