Correlation Between Korean Air and Korean Drug

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

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

Diversification Opportunities for Korean Air and Korean Drug

0.44

Correlation Coefficient

Korean Air  Korean Drug

Very weak diversification

The 3 months correlation between Korean and Korean is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Korean Drug Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Drug and Korean Air 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 Korean Air Lines 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 Korean Air i.e., Korean Air and Korean Drug go up and down completely randomly.

Pair Corralation between Korean Air and Korean Drug

Assuming the 90 days trading horizon Korean Air Lines is expected to under-perform the Korean Drug. In addition to that, Korean Air is 1.18 times more volatile than Korean Drug Co. It trades about -0.03 of its total potential returns per unit of risk. Korean Drug Co is currently generating about 0.02 per unit of volatility. If you would invest  455,968  in Korean Drug Co on December 24, 2024 and sell it today you would earn a total of  4,032  from holding Korean Drug Co or generate 0.88% return on investment over 90 days.

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

Korean Air Lines  vs.  Korean Drug Co

Korean Air Lines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Korean Air Lines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Korean Air 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

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Drug Co are ranked lower than 1 (%) 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 Korean Air and Korean Drug

The main advantage of trading using opposite Korean Air and Korean Drug positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korean Air 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 Korean Air Lines 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.