Correlation Between Korean Air and Next Bt

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

Diversification Opportunities for Korean Air and Next Bt

-0.83

Correlation Coefficient

Korean Air  Next Bt

Pay attention - limited upside

The 3 months correlation between Korean and Next is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Next Bt Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Bt 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 Next Bt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Bt has no effect on the direction of Korean Air i.e., Korean Air and Next Bt go up and down completely randomly.

Pair Corralation between Korean Air and Next Bt

Assuming the 90 days trading horizon Korean Air Lines is expected to under-perform the Next Bt. But the stock apears to be less risky and, when comparing its historical volatility, Korean Air Lines is 3.06 times less risky than Next Bt. The stock trades about -0.06 of its potential returns per unit of risk. The Next Bt Co is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  20,900  in Next Bt Co on September 22, 2024 and sell it today you would earn a total of  2,500  from holding Next Bt Co or generate 11.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	72.73%
Values	Daily Returns

Korean Air Lines  vs.  Next Bt Co

Korean Air Lines

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 4 (%) 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 January 2025.

Next Bt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Next Bt Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Korean Air and Next Bt

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

The idea behind Korean Air Lines and Next Bt 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.