Correlation Between Hankook Furniture and Hanwha Aerospace

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

Diversification Opportunities for Hankook Furniture and Hanwha Aerospace

0.6

Correlation Coefficient

Hankook Furniture  Hanwha Aerospace

Poor diversification

The 3 months correlation between Hankook and Hanwha is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Hankook Furniture Co and Hanwha Aerospace Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanwha Aerospace 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 Hanwha Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanwha Aerospace has no effect on the direction of Hankook Furniture i.e., Hankook Furniture and Hanwha Aerospace go up and down completely randomly.

Pair Corralation between Hankook Furniture and Hanwha Aerospace

Assuming the 90 days trading horizon Hankook Furniture is expected to generate 17.66 times less return on investment than Hanwha Aerospace. But when comparing it to its historical volatility, Hankook Furniture Co is 4.06 times less risky than Hanwha Aerospace. It trades about 0.05 of its potential returns per unit of risk. Hanwha Aerospace Co is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  32,650,000  in Hanwha Aerospace Co on December 30, 2024 and sell it today you would earn a total of  30,350,000  from holding Hanwha Aerospace Co or generate 92.96% return on investment over 90 days.

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

Hankook Furniture Co  vs.  Hanwha Aerospace Co

Hankook Furniture

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hankook Furniture Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hankook Furniture is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hanwha Aerospace

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hanwha Aerospace Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hanwha Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hankook Furniture and Hanwha Aerospace

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

The idea behind Hankook Furniture Co and Hanwha Aerospace 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.