Correlation Between Korean Air and Solus Advanced

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

Diversification Opportunities for Korean Air and Solus Advanced

-0.74

Correlation Coefficient

Korean Air  Solus Advanced

Pay attention - limited upside

The 3 months correlation between Korean and Solus is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Solus Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solus Advanced 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 Solus Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solus Advanced Materials has no effect on the direction of Korean Air i.e., Korean Air and Solus Advanced go up and down completely randomly.

Pair Corralation between Korean Air and Solus Advanced

Assuming the 90 days trading horizon Korean Air Lines is expected to generate 0.52 times more return on investment than Solus Advanced. However, Korean Air Lines is 1.91 times less risky than Solus Advanced. It trades about 0.19 of its potential returns per unit of risk. Solus Advanced Materials is currently generating about -0.23 per unit of risk. If you would invest  2,210,000  in Korean Air Lines on September 2, 2024 and sell it today you would earn a total of  385,000  from holding Korean Air Lines or generate 17.42% return on investment over 90 days.

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

Korean Air Lines  vs.  Solus Advanced Materials

Korean Air Lines

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Solus Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solus Advanced 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 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 Solus Advanced

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

The idea behind Korean Air Lines and Solus Advanced 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.