Correlation Between Sung Bo and Nam Hwa

Can any of the company-specific risk be diversified away by investing in both Sung Bo and Nam Hwa 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 Sung Bo and Nam Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sung Bo Chemicals and Nam Hwa Construction, you can compare the effects of market volatilities on Sung Bo and Nam Hwa 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 Sung Bo with a short position of Nam Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sung Bo and Nam Hwa.

Diversification Opportunities for Sung Bo and Nam Hwa

-0.01

Correlation Coefficient

Sung Bo  Nam Hwa

Good diversification

The 3 months correlation between Sung and Nam is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Sung Bo Chemicals and Nam Hwa Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nam Hwa Construction and Sung Bo 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 Sung Bo Chemicals are associated (or correlated) with Nam Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nam Hwa Construction has no effect on the direction of Sung Bo i.e., Sung Bo and Nam Hwa go up and down completely randomly.

Pair Corralation between Sung Bo and Nam Hwa

Assuming the 90 days trading horizon Sung Bo is expected to generate 5.15 times less return on investment than Nam Hwa. But when comparing it to its historical volatility, Sung Bo Chemicals is 3.03 times less risky than Nam Hwa. It trades about 0.1 of its potential returns per unit of risk. Nam Hwa Construction is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  410,000  in Nam Hwa Construction on September 23, 2024 and sell it today you would earn a total of  25,000  from holding Nam Hwa Construction or generate 6.1% return on investment over 90 days.

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

Sung Bo Chemicals  vs.  Nam Hwa Construction

Sung Bo Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sung Bo Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sung Bo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nam Hwa Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nam Hwa Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nam Hwa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sung Bo and Nam Hwa

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

The idea behind Sung Bo Chemicals and Nam Hwa Construction 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.