Correlation Between Hyundai and TK Chemical

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

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

Diversification Opportunities for Hyundai and TK Chemical

0.69

Correlation Coefficient

Hyundai  TK Chemical

Poor diversification

The 3 months correlation between Hyundai and 104480 is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Hyundai Motor and TK Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TK Chemical and Hyundai 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 Hyundai Motor are associated (or correlated) with TK Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TK Chemical has no effect on the direction of Hyundai i.e., Hyundai and TK Chemical go up and down completely randomly.

Pair Corralation between Hyundai and TK Chemical

Assuming the 90 days trading horizon Hyundai Motor is expected to under-perform the TK Chemical. In addition to that, Hyundai is 1.42 times more volatile than TK Chemical. It trades about -0.07 of its total potential returns per unit of risk. TK Chemical is currently generating about -0.04 per unit of volatility. If you would invest  141,400  in TK Chemical on September 2, 2024 and sell it today you would lose (6,000) from holding TK Chemical or give up 4.24% of portfolio value over 90 days.

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

Hyundai Motor  vs.  TK Chemical

Hyundai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Motor 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.

TK Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hyundai and TK Chemical

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

The idea behind Hyundai Motor and TK Chemical 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.