Correlation Between Kia Corp and Daedong Gear

Can any of the company-specific risk be diversified away by investing in both Kia Corp and Daedong Gear 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 Kia Corp and Daedong Gear into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kia Corp and Daedong Gear Co, you can compare the effects of market volatilities on Kia Corp and Daedong Gear 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 Kia Corp with a short position of Daedong Gear. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kia Corp and Daedong Gear.

Diversification Opportunities for Kia Corp and Daedong Gear

-0.48

Correlation Coefficient

Kia Corp  Daedong Gear

Very good diversification

The 3 months correlation between Kia and Daedong is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Kia Corp and Daedong Gear Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daedong Gear and Kia Corp 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 Kia Corp are associated (or correlated) with Daedong Gear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daedong Gear has no effect on the direction of Kia Corp i.e., Kia Corp and Daedong Gear go up and down completely randomly.

Pair Corralation between Kia Corp and Daedong Gear

Assuming the 90 days trading horizon Kia Corp is expected to generate 11.76 times less return on investment than Daedong Gear. But when comparing it to its historical volatility, Kia Corp is 3.97 times less risky than Daedong Gear. It trades about 0.06 of its potential returns per unit of risk. Daedong Gear Co is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,257,000  in Daedong Gear Co on December 26, 2024 and sell it today you would earn a total of  883,000  from holding Daedong Gear Co or generate 70.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Kia Corp  vs.  Daedong Gear Co

Kia Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kia Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Kia Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Daedong Gear

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daedong Gear Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daedong Gear sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kia Corp and Daedong Gear

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

The idea behind Kia Corp and Daedong Gear Co 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.