Correlation Between National Plastic and Iljin Materials

Can any of the company-specific risk be diversified away by investing in both National Plastic and Iljin 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 National Plastic and Iljin Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Plastic Co and Iljin Materials Co, you can compare the effects of market volatilities on National Plastic and Iljin 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 National Plastic with a short position of Iljin Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Plastic and Iljin Materials.

Diversification Opportunities for National Plastic and Iljin Materials

-0.2

Correlation Coefficient

National Plastic  Iljin Materials

Good diversification

The 3 months correlation between National and Iljin is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding National Plastic Co and Iljin Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iljin Materials and National Plastic 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 National Plastic Co are associated (or correlated) with Iljin Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iljin Materials has no effect on the direction of National Plastic i.e., National Plastic and Iljin Materials go up and down completely randomly.

Pair Corralation between National Plastic and Iljin Materials

Assuming the 90 days trading horizon National Plastic is expected to generate 29.36 times less return on investment than Iljin Materials. But when comparing it to its historical volatility, National Plastic Co is 5.07 times less risky than Iljin Materials. It trades about 0.05 of its potential returns per unit of risk. Iljin Materials Co is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,030,000  in Iljin Materials Co on December 4, 2024 and sell it today you would earn a total of  540,000  from holding Iljin Materials Co or generate 26.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

National Plastic Co  vs.  Iljin Materials Co

National Plastic

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Plastic Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, National Plastic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Iljin Materials

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Iljin Materials Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Iljin Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Plastic and Iljin Materials

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

The idea behind National Plastic Co and Iljin Materials 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.