Correlation Between POSCO Holdings and Moonbae Steel

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

By analyzing existing cross correlation between POSCO Holdings and Moonbae Steel, you can compare the effects of market volatilities on POSCO Holdings and Moonbae Steel 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 Moonbae Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of POSCO Holdings and Moonbae Steel.

Diversification Opportunities for POSCO Holdings and Moonbae Steel

0.17

Correlation Coefficient

POSCO Holdings  Moonbae Steel

Average diversification

The 3 months correlation between POSCO and Moonbae is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and Moonbae Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moonbae Steel 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 Moonbae Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moonbae Steel has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and Moonbae Steel go up and down completely randomly.

Pair Corralation between POSCO Holdings and Moonbae Steel

Assuming the 90 days trading horizon POSCO Holdings is expected to under-perform the Moonbae Steel. In addition to that, POSCO Holdings is 1.01 times more volatile than Moonbae Steel. It trades about -0.17 of its total potential returns per unit of risk. Moonbae Steel is currently generating about -0.02 per unit of volatility. If you would invest  237,500  in Moonbae Steel on September 13, 2024 and sell it today you would lose (11,000) from holding Moonbae Steel or give up 4.63% 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.  Moonbae Steel

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings 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.

Moonbae Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with POSCO Holdings and Moonbae Steel

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

The idea behind POSCO Holdings and Moonbae Steel 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.