Correlation Between Thai Capital and Charoen Pokphand

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

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

Diversification Opportunities for Thai Capital and Charoen Pokphand

0.03

Correlation Coefficient

Thai Capital  Charoen Pokphand

Significant diversification

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

Pair Corralation between Thai Capital and Charoen Pokphand

Assuming the 90 days trading horizon Thai Capital is expected to generate 30.11 times more return on investment than Charoen Pokphand. However, Thai Capital is 30.11 times more volatile than Charoen Pokphand Foods. It trades about 0.04 of its potential returns per unit of risk. Charoen Pokphand Foods is currently generating about 0.01 per unit of risk. If you would invest  83.00  in Thai Capital on September 5, 2024 and sell it today you would lose (42.00) from holding Thai Capital or give up 50.6% of portfolio value over 90 days.

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

Thai Capital  vs.  Charoen Pokphand Foods

Thai Capital

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Thai Capital and Charoen Pokphand

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

The idea behind Thai Capital and Charoen Pokphand Foods 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.