Correlation Between Hanshin Construction and Taegu Broadcasting

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

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

Diversification Opportunities for Hanshin Construction and Taegu Broadcasting

-0.63

Correlation Coefficient

Hanshin Construction  Taegu Broadcasting

Excellent diversification

The 3 months correlation between Hanshin and Taegu is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Hanshin Construction Co and Taegu Broadcasting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taegu Broadcasting and Hanshin Construction 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 Hanshin Construction Co are associated (or correlated) with Taegu Broadcasting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taegu Broadcasting has no effect on the direction of Hanshin Construction i.e., Hanshin Construction and Taegu Broadcasting go up and down completely randomly.

Pair Corralation between Hanshin Construction and Taegu Broadcasting

Assuming the 90 days trading horizon Hanshin Construction Co is expected to under-perform the Taegu Broadcasting. But the stock apears to be less risky and, when comparing its historical volatility, Hanshin Construction Co is 1.25 times less risky than Taegu Broadcasting. The stock trades about -0.07 of its potential returns per unit of risk. The Taegu Broadcasting is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  81,400  in Taegu Broadcasting on September 22, 2024 and sell it today you would earn a total of  4,600  from holding Taegu Broadcasting or generate 5.65% return on investment over 90 days.

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

Hanshin Construction Co  vs.  Taegu Broadcasting

Hanshin Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Taegu Broadcasting

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taegu Broadcasting are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Taegu Broadcasting sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hanshin Construction and Taegu Broadcasting

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

The idea behind Hanshin Construction Co and Taegu Broadcasting 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.