Correlation Between Hankook Furniture and Hyundai

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

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

Diversification Opportunities for Hankook Furniture and Hyundai

-0.5

Correlation Coefficient

Hankook Furniture  Hyundai

Very good diversification

The 3 months correlation between Hankook and Hyundai is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Hankook Furniture Co and Hyundai Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor and Hankook Furniture 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 Hankook Furniture Co are associated (or correlated) with Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of Hankook Furniture i.e., Hankook Furniture and Hyundai go up and down completely randomly.

Pair Corralation between Hankook Furniture and Hyundai

Assuming the 90 days trading horizon Hankook Furniture is expected to generate 15.98 times less return on investment than Hyundai. But when comparing it to its historical volatility, Hankook Furniture Co is 1.42 times less risky than Hyundai. It trades about 0.01 of its potential returns per unit of risk. Hyundai Motor Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,076,785  in Hyundai Motor Co on October 5, 2024 and sell it today you would earn a total of  8,343,215  from holding Hyundai Motor Co or generate 117.9% return on investment over 90 days.

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

Hankook Furniture Co  vs.  Hyundai Motor Co

Hankook Furniture

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hankook Furniture Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hankook Furniture may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hyundai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Hankook Furniture and Hyundai

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

The idea behind Hankook Furniture Co and Hyundai Motor 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.