Correlation Between Hanjin Transportation and Korea Petro

Can any of the company-specific risk be diversified away by investing in both Hanjin Transportation and Korea Petro 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 Hanjin Transportation and Korea Petro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hanjin Transportation Co and Korea Petro Chemical, you can compare the effects of market volatilities on Hanjin Transportation and Korea Petro 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 Hanjin Transportation with a short position of Korea Petro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanjin Transportation and Korea Petro.

Diversification Opportunities for Hanjin Transportation and Korea Petro

0.7

Correlation Coefficient

Hanjin Transportation  Korea Petro

Poor diversification

The 3 months correlation between Hanjin and Korea is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Hanjin Transportation Co and Korea Petro Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Petro Chemical and Hanjin Transportation 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 Hanjin Transportation Co are associated (or correlated) with Korea Petro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Petro Chemical has no effect on the direction of Hanjin Transportation i.e., Hanjin Transportation and Korea Petro go up and down completely randomly.

Pair Corralation between Hanjin Transportation and Korea Petro

Assuming the 90 days trading horizon Hanjin Transportation is expected to generate 13.38 times less return on investment than Korea Petro. But when comparing it to its historical volatility, Hanjin Transportation Co is 5.53 times less risky than Korea Petro. It trades about 0.05 of its potential returns per unit of risk. Korea Petro Chemical is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,700,000  in Korea Petro Chemical on December 25, 2024 and sell it today you would earn a total of  1,870,000  from holding Korea Petro Chemical or generate 24.29% return on investment over 90 days.

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

Hanjin Transportation Co  vs.  Korea Petro Chemical

Hanjin Transportation

Risk-Adjusted Performance

Insignificant

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

Korea Petro Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Petro Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Petro sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hanjin Transportation and Korea Petro

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

The idea behind Hanjin Transportation Co and Korea Petro Chemical 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.