Correlation Between Samsung Electronics and SK Hynix

Can any of the company-specific risk be diversified away by investing in both Samsung Electronics and SK Hynix 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 Samsung Electronics and SK Hynix into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Samsung Electronics Co and SK Hynix, you can compare the effects of market volatilities on Samsung Electronics and SK Hynix 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 Samsung Electronics with a short position of SK Hynix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Samsung Electronics and SK Hynix.

Diversification Opportunities for Samsung Electronics and SK Hynix

0.27

Correlation Coefficient

Samsung Electronics  SK Hynix

Modest diversification

The 3 months correlation between Samsung and 000660 is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Samsung Electronics Co and SK Hynix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK Hynix and Samsung Electronics 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 Samsung Electronics Co are associated (or correlated) with SK Hynix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK Hynix has no effect on the direction of Samsung Electronics i.e., Samsung Electronics and SK Hynix go up and down completely randomly.

Pair Corralation between Samsung Electronics and SK Hynix

Assuming the 90 days trading horizon Samsung Electronics is expected to generate 5.56 times less return on investment than SK Hynix. But when comparing it to its historical volatility, Samsung Electronics Co is 1.94 times less risky than SK Hynix. It trades about 0.05 of its potential returns per unit of risk. SK Hynix is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  16,110,000  in SK Hynix on November 28, 2024 and sell it today you would earn a total of  3,940,000  from holding SK Hynix or generate 24.46% return on investment over 90 days.

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

Samsung Electronics Co  vs.  SK Hynix

Samsung Electronics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Samsung Electronics Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Samsung Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SK Hynix

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SK Hynix are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SK Hynix sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Samsung Electronics and SK Hynix

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

The idea behind Samsung Electronics Co and SK Hynix 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.