Correlation Between Hyundai and Jeju Semiconductor

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

By analyzing existing cross correlation between Hyundai Motor Co and Jeju Semiconductor Corp, you can compare the effects of market volatilities on Hyundai and Jeju Semiconductor 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 Jeju Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hyundai and Jeju Semiconductor.

Diversification Opportunities for Hyundai and Jeju Semiconductor

0.36

Correlation Coefficient

Hyundai  Jeju Semiconductor

Weak diversification

The 3 months correlation between Hyundai and Jeju is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Hyundai Motor Co and Jeju Semiconductor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jeju Semiconductor Corp 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 Co are associated (or correlated) with Jeju Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jeju Semiconductor Corp has no effect on the direction of Hyundai i.e., Hyundai and Jeju Semiconductor go up and down completely randomly.

Pair Corralation between Hyundai and Jeju Semiconductor

Assuming the 90 days trading horizon Hyundai is expected to generate 13.99 times less return on investment than Jeju Semiconductor. But when comparing it to its historical volatility, Hyundai Motor Co is 4.57 times less risky than Jeju Semiconductor. It trades about 0.07 of its potential returns per unit of risk. Jeju Semiconductor Corp is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  910,000  in Jeju Semiconductor Corp on December 24, 2024 and sell it today you would earn a total of  686,000  from holding Jeju Semiconductor Corp or generate 75.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Hyundai Motor Co  vs.  Jeju Semiconductor Corp

Hyundai Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hyundai Motor Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hyundai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jeju Semiconductor Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jeju Semiconductor Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jeju Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hyundai and Jeju Semiconductor

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

The idea behind Hyundai Motor Co and Jeju Semiconductor Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.