Correlation Between Hankook Furniture and Youngbo Chemical

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

Diversification Opportunities for Hankook Furniture and Youngbo Chemical

0.82

Correlation Coefficient

Hankook Furniture  Youngbo Chemical

Very poor diversification

The 3 months correlation between Hankook and Youngbo is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hankook Furniture Co and Youngbo Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youngbo Chemical 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 Youngbo Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youngbo Chemical has no effect on the direction of Hankook Furniture i.e., Hankook Furniture and Youngbo Chemical go up and down completely randomly.

Pair Corralation between Hankook Furniture and Youngbo Chemical

Assuming the 90 days trading horizon Hankook Furniture is expected to generate 1.36 times less return on investment than Youngbo Chemical. But when comparing it to its historical volatility, Hankook Furniture Co is 1.03 times less risky than Youngbo Chemical. It trades about 0.2 of its potential returns per unit of risk. Youngbo Chemical Co is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  343,140  in Youngbo Chemical Co on October 6, 2024 and sell it today you would earn a total of  29,360  from holding Youngbo Chemical Co or generate 8.56% return on investment over 90 days.

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

Hankook Furniture Co  vs.  Youngbo Chemical Co

Hankook Furniture

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hankook Furniture Co are ranked lower than 9 (%) 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.

Youngbo Chemical

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Youngbo Chemical Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Youngbo Chemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hankook Furniture and Youngbo Chemical

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

The idea behind Hankook Furniture Co and Youngbo Chemical 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.