Correlation Between Korea Air and Korea Gas

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

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

Diversification Opportunities for Korea Air and Korea Gas

-0.44

Correlation Coefficient

Korea Air  Korea Gas

Very good diversification

The 3 months correlation between Korea and Korea is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Korea Air Svc and Korea Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Gas and Korea Air 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 Korea Air Svc are associated (or correlated) with Korea Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Gas has no effect on the direction of Korea Air i.e., Korea Air and Korea Gas go up and down completely randomly.

Pair Corralation between Korea Air and Korea Gas

Assuming the 90 days trading horizon Korea Air Svc is expected to generate 0.63 times more return on investment than Korea Gas. However, Korea Air Svc is 1.59 times less risky than Korea Gas. It trades about 0.05 of its potential returns per unit of risk. Korea Gas is currently generating about -0.19 per unit of risk. If you would invest  5,650,000  in Korea Air Svc on September 28, 2024 and sell it today you would earn a total of  140,000  from holding Korea Air Svc or generate 2.48% return on investment over 90 days.

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

Korea Air Svc  vs.  Korea Gas

Korea Air Svc

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Air Svc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Air may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Korea Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Korea Air and Korea Gas

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

The idea behind Korea Air Svc and Korea Gas 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.