Correlation Between Korea Air and Woorim Machinery

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

Diversification Opportunities for Korea Air and Woorim Machinery

-0.6

Correlation Coefficient

Korea Air  Woorim Machinery

Excellent diversification

The 3 months correlation between Korea and Woorim is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Korea Air Svc and Woorim Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woorim Machinery 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 Woorim Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woorim Machinery has no effect on the direction of Korea Air i.e., Korea Air and Woorim Machinery go up and down completely randomly.

Pair Corralation between Korea Air and Woorim Machinery

Assuming the 90 days trading horizon Korea Air Svc is expected to under-perform the Woorim Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Korea Air Svc is 1.62 times less risky than Woorim Machinery. The stock trades about -0.05 of its potential returns per unit of risk. The Woorim Machinery Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  438,206  in Woorim Machinery Co on December 10, 2024 and sell it today you would earn a total of  119,794  from holding Woorim Machinery Co or generate 27.34% return on investment over 90 days.

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

Korea Air Svc  vs.  Woorim Machinery 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.

Woorim Machinery

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Woorim Machinery Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Woorim Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Air and Woorim Machinery

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

The idea behind Korea Air Svc and Woorim Machinery 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.

Check out your portfolio center.

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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.