Correlation Between Korean Air and Hana Materials

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

Diversification Opportunities for Korean Air and Hana Materials

-0.69

Correlation Coefficient

Korean Air  Hana Materials

Excellent diversification

The 3 months correlation between Korean and Hana is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Hana Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hana Materials 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 Hana Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hana Materials has no effect on the direction of Korean Air i.e., Korean Air and Hana Materials go up and down completely randomly.

Pair Corralation between Korean Air and Hana Materials

Assuming the 90 days trading horizon Korean Air Lines is expected to generate 0.51 times more return on investment than Hana Materials. However, Korean Air Lines is 1.95 times less risky than Hana Materials. It trades about 0.01 of its potential returns per unit of risk. Hana Materials is currently generating about -0.27 per unit of risk. If you would invest  2,270,000  in Korean Air Lines on October 4, 2024 and sell it today you would lose (10,000) from holding Korean Air Lines or give up 0.44% of portfolio value over 90 days.

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

Korean Air Lines  vs.  Hana Materials

Korean Air Lines

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Hana Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hana Materials 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Korean Air and Hana Materials

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

The idea behind Korean Air Lines and Hana Materials 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.