SAHOL (Long) / KCHOL (Short) - 27th Decembe

PAIR TRADE: SAHOL (Long) / KCHOL (Short)
 

Current Δ: TL0.60  

 

Target Δ: TL0.95 / Stop-loss Δ: TL0.31

Sabanci Holding and Koc Holding share prices have been correlated by a factor of 0.82x and 0.96x in the last one month and three months, respectively. The current price differential (Δ) between SAHOL and KCHOL is at TL0.60. This is 1.8x standard deviation lower than average last one month price differential of TL0.95, which suggests that KCHOL shares are relatively overvalued.  Our quantitative model suggests going long on SAHOL and short on KCHOL. We target TL0.95 price difference which offers 4% return, while our stop-loss level is at Δ: TL0.31 (1.5x standard deviation below the current level) implying 3% loss.          

KOC HOLDING (Outperform) - Resuming Coverage: Room for More

Resuming coverage with Outperform rating at PT of TL 8.47/share  

We resume our coverage on Koc Holding with Outperform rating on Price Target of TL8.47/share, implying 15% return potential. Our PT is driven from our Sum-of-The-Parts valuation, applying 5% conglomerate discount (in line with its 2010-to-date and YTD average NAV discount). We are relatively positive on the Koc’s main segments, especially Tupras (OP), Tofas (OP), Ford Otosan (OP), Turk Traktor (OP), Arcelik (OP) and YKB (MP, yet positive in the long term), backed by their business models, market positioning and growth & profitability outlook.

BGC Partners: Quant ideas: "Buy KCHOL- Sell SAHOL"

Our quantitative pair trading model signals to open Long "KCHOL"/ Short "SAHOL"

This is the 6th time that our model signals a pair trade between Koc Holding and Sabanci Holding over the past three years. The average return of the previous trades has been 3.2% while the relevant investment period was 6 days. Liquidity could not be an issue, since both Koc Holding and Sabanci Holding have respective average daily trading volumes of US$13mn.

Brief summary of the model:

Pairs are identified based on fundamental relations ie parent vs subsidiary, stocks in the same sectors such as banking or cement, or indices and their constituents. Later on, these pairs are tested statistically to see whether there is a high correlation between them. We analyse a total of 700 pairs on a daily basis. The model is structured around the mean reversion rule and parameters such as correlation, normal curve value of the differential, normal curve value of the ratio, moving averages, volatility and other statistical characteristics of the pairs are monitored on a daily basis.