Correlation Between Korea Air and KEPCO Engineering

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

Diversification Opportunities for Korea Air and KEPCO Engineering

-0.49

Correlation Coefficient

Korea Air  KEPCO Engineering

Very good diversification

The 3 months correlation between Korea and KEPCO is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Korea Air Svc and KEPCO Engineering Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KEPCO Engineering 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 KEPCO Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KEPCO Engineering has no effect on the direction of Korea Air i.e., Korea Air and KEPCO Engineering go up and down completely randomly.

Pair Corralation between Korea Air and KEPCO Engineering

Assuming the 90 days trading horizon Korea Air Svc is expected to under-perform the KEPCO Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Korea Air Svc is 1.06 times less risky than KEPCO Engineering. The stock trades about -0.05 of its potential returns per unit of risk. The KEPCO Engineering Construction is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  4,980,000  in KEPCO Engineering Construction on December 10, 2024 and sell it today you would earn a total of  1,570,000  from holding KEPCO Engineering Construction or generate 31.53% 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.  KEPCO Engineering Construction

Korea Air Svc

Risk-Adjusted Performance

Very Weak

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

KEPCO Engineering

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KEPCO Engineering Construction are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KEPCO Engineering sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Air and KEPCO Engineering

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

The idea behind Korea Air Svc and KEPCO Engineering Construction 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 Anywhere module to track or share privately all of your investments from the convenience of any device.