Correlation Between Korea Line and Hannong Chemicals

Can any of the company-specific risk be diversified away by investing in both Korea Line and Hannong Chemicals 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 Line and Hannong Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Korea Line and Hannong Chemicals, you can compare the effects of market volatilities on Korea Line and Hannong Chemicals 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 Line with a short position of Hannong Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Line and Hannong Chemicals.

Diversification Opportunities for Korea Line and Hannong Chemicals

0.47

Correlation Coefficient

Korea Line  Hannong Chemicals

Very weak diversification

The 3 months correlation between Korea and Hannong is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Korea Line and Hannong Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hannong Chemicals and Korea Line 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 Line are associated (or correlated) with Hannong Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hannong Chemicals has no effect on the direction of Korea Line i.e., Korea Line and Hannong Chemicals go up and down completely randomly.

Pair Corralation between Korea Line and Hannong Chemicals

Assuming the 90 days trading horizon Korea Line is expected to under-perform the Hannong Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Korea Line is 2.45 times less risky than Hannong Chemicals. The stock trades about -0.02 of its potential returns per unit of risk. The Hannong Chemicals is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,359,630  in Hannong Chemicals on December 24, 2024 and sell it today you would earn a total of  298,370  from holding Hannong Chemicals or generate 21.94% return on investment over 90 days.

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

Korea Line  vs.  Hannong Chemicals

Korea Line

Risk-Adjusted Performance

Very Weak

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

Hannong Chemicals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hannong Chemicals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hannong Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Line and Hannong Chemicals

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

The idea behind Korea Line and Hannong Chemicals 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.