Correlation Between Korea Air and ISU Abxis

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

Diversification Opportunities for Korea Air and ISU Abxis

-0.48

Correlation Coefficient

Korea Air  ISU Abxis

Very good diversification

The 3 months correlation between Korea and ISU is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Korea Air Svc and ISU Abxis Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ISU Abxis 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 ISU Abxis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ISU Abxis has no effect on the direction of Korea Air i.e., Korea Air and ISU Abxis go up and down completely randomly.

Pair Corralation between Korea Air and ISU Abxis

Assuming the 90 days trading horizon Korea Air Svc is expected to generate 0.86 times more return on investment than ISU Abxis. However, Korea Air Svc is 1.17 times less risky than ISU Abxis. It trades about 0.04 of its potential returns per unit of risk. ISU Abxis Co is currently generating about 0.0 per unit of risk. If you would invest  4,800,000  in Korea Air Svc on December 10, 2024 and sell it today you would earn a total of  330,000  from holding Korea Air Svc or generate 6.88% 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.  ISU Abxis Co

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.

ISU Abxis

Risk-Adjusted Performance

Solid

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

Pair Trading with Korea Air and ISU Abxis

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

The idea behind Korea Air Svc and ISU Abxis Co 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.