Correlation Between Korean Air and Korea Real

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

Diversification Opportunities for Korean Air and Korea Real

-0.45

Correlation Coefficient

Korean Air  Korea Real

Very good diversification

The 3 months correlation between Korean and Korea is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Korea Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Real Estate 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 Korea Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Real Estate has no effect on the direction of Korean Air i.e., Korean Air and Korea Real go up and down completely randomly.

Pair Corralation between Korean Air and Korea Real

Assuming the 90 days trading horizon Korean Air is expected to generate 3.19 times less return on investment than Korea Real. In addition to that, Korean Air is 1.61 times more volatile than Korea Real Estate. It trades about 0.01 of its total potential returns per unit of risk. Korea Real Estate is currently generating about 0.05 per unit of volatility. If you would invest  99,600  in Korea Real Estate on October 10, 2024 and sell it today you would earn a total of  1,000.00  from holding Korea Real Estate or generate 1.0% return on investment over 90 days.

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

Korean Air Lines  vs.  Korea Real Estate

Korean Air Lines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Korea Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Korean Air Lines and Korea Real Estate 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.