Correlation Between Thai Beverage and Titan Machinery

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

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

Diversification Opportunities for Thai Beverage and Titan Machinery

0.0

Correlation Coefficient

Thai Beverage  Titan Machinery

Pay attention - limited upside

The 3 months correlation between Thai and Titan is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Thai Beverage PCL and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery and Thai Beverage 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 Beverage PCL are associated (or correlated) with Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of Thai Beverage i.e., Thai Beverage and Titan Machinery go up and down completely randomly.

Pair Corralation between Thai Beverage and Titan Machinery

Assuming the 90 days horizon Thai Beverage PCL is expected to generate 0.66 times more return on investment than Titan Machinery. However, Thai Beverage PCL is 1.52 times less risky than Titan Machinery. It trades about -0.06 of its potential returns per unit of risk. Titan Machinery is currently generating about -0.06 per unit of risk. If you would invest  5,200  in Thai Beverage PCL on October 11, 2024 and sell it today you would lose (1,833) from holding Thai Beverage PCL or give up 35.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	60.4%
Values	Daily Returns

Thai Beverage PCL  vs.  Titan Machinery

Thai Beverage PCL

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Thai Beverage PCL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Thai Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Titan Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Titan Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Titan Machinery is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Thai Beverage and Titan Machinery

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

The idea behind Thai Beverage PCL and Titan Machinery 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.