Correlation Between POSCO Holdings and SH Energy

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

By analyzing existing cross correlation between POSCO Holdings and SH Energy Chemical, you can compare the effects of market volatilities on POSCO Holdings and SH Energy 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 POSCO Holdings with a short position of SH Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of POSCO Holdings and SH Energy.

Diversification Opportunities for POSCO Holdings and SH Energy

0.01

Correlation Coefficient

POSCO Holdings  SH Energy

Significant diversification

The 3 months correlation between POSCO and 002360 is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and SH Energy Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SH Energy Chemical and POSCO Holdings 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 POSCO Holdings are associated (or correlated) with SH Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SH Energy Chemical has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and SH Energy go up and down completely randomly.

Pair Corralation between POSCO Holdings and SH Energy

Assuming the 90 days trading horizon POSCO Holdings is expected to generate 0.95 times more return on investment than SH Energy. However, POSCO Holdings is 1.05 times less risky than SH Energy. It trades about 0.0 of its potential returns per unit of risk. SH Energy Chemical is currently generating about -0.05 per unit of risk. If you would invest  27,801,300  in POSCO Holdings on December 2, 2024 and sell it today you would lose (551,300) from holding POSCO Holdings or give up 1.98% of portfolio value over 90 days.

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

POSCO Holdings  vs.  SH Energy Chemical

POSCO Holdings

Risk-Adjusted Performance

Very Weak

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

SH Energy Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days SH Energy Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with POSCO Holdings and SH Energy

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

The idea behind POSCO Holdings and SH Energy Chemical 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.