Correlation Between Korean Air and Korea New

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

Diversification Opportunities for Korean Air and Korea New

-0.36

Correlation Coefficient

Korean Air  Korea New

Very good diversification

The 3 months correlation between Korean and Korea is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Korea New Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea New Network 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 New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea New Network has no effect on the direction of Korean Air i.e., Korean Air and Korea New go up and down completely randomly.

Pair Corralation between Korean Air and Korea New

Assuming the 90 days trading horizon Korean Air Lines is expected to under-perform the Korea New. But the stock apears to be less risky and, when comparing its historical volatility, Korean Air Lines is 1.31 times less risky than Korea New. The stock trades about -0.03 of its potential returns per unit of risk. The Korea New Network is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  75,273  in Korea New Network on November 29, 2024 and sell it today you would earn a total of  5,727  from holding Korea New Network or generate 7.61% return on investment over 90 days.

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

Korean Air Lines  vs.  Korea New Network

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 New Network

Risk-Adjusted Performance

Modest

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

Pair Trading with Korean Air and Korea New

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

The idea behind Korean Air Lines and Korea New Network 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.