Correlation Between Hanshin Construction and Hanjoo Light

Can any of the company-specific risk be diversified away by investing in both Hanshin Construction and Hanjoo Light 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 Hanjoo Light 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 Hanjoo Light Metal, you can compare the effects of market volatilities on Hanshin Construction and Hanjoo Light 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 Hanjoo Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanshin Construction and Hanjoo Light.

Diversification Opportunities for Hanshin Construction and Hanjoo Light

0.02

Correlation Coefficient

Hanshin Construction  Hanjoo Light

Significant diversification

The 3 months correlation between Hanshin and Hanjoo is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Hanshin Construction Co and Hanjoo Light Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanjoo Light Metal 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 Hanjoo Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanjoo Light Metal has no effect on the direction of Hanshin Construction i.e., Hanshin Construction and Hanjoo Light go up and down completely randomly.

Pair Corralation between Hanshin Construction and Hanjoo Light

Assuming the 90 days trading horizon Hanshin Construction Co is expected to under-perform the Hanjoo Light. But the stock apears to be less risky and, when comparing its historical volatility, Hanshin Construction Co is 1.45 times less risky than Hanjoo Light. The stock trades about -0.05 of its potential returns per unit of risk. The Hanjoo Light Metal is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  72,300  in Hanjoo Light Metal on December 25, 2024 and sell it today you would lose (600.00) from holding Hanjoo Light Metal or give up 0.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.25%
Values	Daily Returns

Hanshin Construction Co  vs.  Hanjoo Light Metal

Hanshin Construction

Risk-Adjusted Performance

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.

Hanjoo Light Metal

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hanshin Construction and Hanjoo Light

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

The idea behind Hanshin Construction Co and Hanjoo Light Metal 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.