Correlation Between Hanjin Transportation and Korean Drug

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

Diversification Opportunities for Hanjin Transportation and Korean Drug

0.68

Correlation Coefficient

Hanjin Transportation  Korean Drug

Poor diversification

The 3 months correlation between Hanjin and Korean is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Hanjin Transportation Co and Korean Drug Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Drug 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 Korean Drug. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Drug has no effect on the direction of Hanjin Transportation i.e., Hanjin Transportation and Korean Drug go up and down completely randomly.

Pair Corralation between Hanjin Transportation and Korean Drug

Assuming the 90 days trading horizon Hanjin Transportation is expected to generate 1.39 times less return on investment than Korean Drug. But when comparing it to its historical volatility, Hanjin Transportation Co is 2.15 times less risky than Korean Drug. It trades about 0.04 of its potential returns per unit of risk. Korean Drug Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  479,202  in Korean Drug Co on October 22, 2024 and sell it today you would earn a total of  10,298  from holding Korean Drug Co or generate 2.15% 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.  Korean Drug Co

Hanjin Transportation

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hanjin Transportation Co are ranked lower than 3 (%) 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.

Korean Drug

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Drug Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Korean Drug is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hanjin Transportation and Korean Drug

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

The idea behind Hanjin Transportation Co and Korean Drug 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.