Correlation Between Korean Air and Global Tax

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

Diversification Opportunities for Korean Air and Global Tax

0.65

Correlation Coefficient

Korean Air  Global Tax

Poor diversification

The 3 months correlation between Korean and Global is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Global Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Tax Free 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 Global Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Tax Free has no effect on the direction of Korean Air i.e., Korean Air and Global Tax go up and down completely randomly.

Pair Corralation between Korean Air and Global Tax

Assuming the 90 days trading horizon Korean Air is expected to generate 6.56 times less return on investment than Global Tax. But when comparing it to its historical volatility, Korean Air Lines is 2.1 times less risky than Global Tax. It trades about 0.01 of its potential returns per unit of risk. Global Tax Free is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  355,500  in Global Tax Free on September 28, 2024 and sell it today you would earn a total of  37,500  from holding Global Tax Free or generate 10.55% return on investment over 90 days.

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

Korean Air Lines  vs.  Global Tax Free

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.

Global Tax Free

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Tax Free are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Global Tax may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Korean Air and Global Tax

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

The idea behind Korean Air Lines and Global Tax Free 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.