Correlation Between Krung Thai and Thai Capital

Can any of the company-specific risk be diversified away by investing in both Krung Thai and Thai Capital 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 Thai Capital 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 Thai Capital, you can compare the effects of market volatilities on Krung Thai and Thai Capital 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 Thai Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Krung Thai and Thai Capital.

Diversification Opportunities for Krung Thai and Thai Capital

0.15

Correlation Coefficient

Krung Thai  Thai Capital

Average diversification

The 3 months correlation between Krung and Thai is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Krung Thai Bank and Thai Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Capital 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 Thai Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Capital has no effect on the direction of Krung Thai i.e., Krung Thai and Thai Capital go up and down completely randomly.

Pair Corralation between Krung Thai and Thai Capital

Assuming the 90 days trading horizon Krung Thai Bank is expected to generate 0.55 times more return on investment than Thai Capital. However, Krung Thai Bank is 1.81 times less risky than Thai Capital. It trades about 0.19 of its potential returns per unit of risk. Thai Capital is currently generating about -0.03 per unit of risk. If you would invest  2,000  in Krung Thai Bank on September 28, 2024 and sell it today you would earn a total of  120.00  from holding Krung Thai Bank or generate 6.0% return on investment over 90 days.

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

Krung Thai Bank  vs.  Thai Capital

Krung Thai Bank

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Krung Thai Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Krung Thai is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

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 conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Krung Thai and Thai Capital

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

The idea behind Krung Thai Bank and Thai Capital 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.