Correlation Between Korean Air and Korea Electronic

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

Diversification Opportunities for Korean Air and Korea Electronic

0.21

Correlation Coefficient

Korean Air  Korea Electronic

Modest diversification

The 3 months correlation between Korean and Korea is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Korea Electronic Certification in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Electronic Cer 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 Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Electronic Cer has no effect on the direction of Korean Air i.e., Korean Air and Korea Electronic go up and down completely randomly.

Pair Corralation between Korean Air and Korea Electronic

Assuming the 90 days trading horizon Korean Air Lines is expected to under-perform the Korea Electronic. In addition to that, Korean Air is 1.1 times more volatile than Korea Electronic Certification. It trades about -0.02 of its total potential returns per unit of risk. Korea Electronic Certification is currently generating about 0.18 per unit of volatility. If you would invest  290,012  in Korea Electronic Certification on December 23, 2024 and sell it today you would earn a total of  45,988  from holding Korea Electronic Certification or generate 15.86% return on investment over 90 days.

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

Korean Air Lines  vs.  Korea Electronic Certification

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.

Korea Electronic Cer

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Electronic Certification are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Electronic sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korean Air and Korea Electronic

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

The idea behind Korean Air Lines and Korea Electronic Certification 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.