Correlation Between Jeju Bank and Hyundai Steel

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

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

Diversification Opportunities for Jeju Bank and Hyundai Steel

-0.38

Correlation Coefficient

Jeju Bank  Hyundai Steel

Very good diversification

The 3 months correlation between Jeju and Hyundai is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Jeju Bank and Hyundai Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Steel and Jeju Bank 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 Jeju Bank are associated (or correlated) with Hyundai Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Steel has no effect on the direction of Jeju Bank i.e., Jeju Bank and Hyundai Steel go up and down completely randomly.

Pair Corralation between Jeju Bank and Hyundai Steel

Assuming the 90 days trading horizon Jeju Bank is expected to generate 48.92 times less return on investment than Hyundai Steel. But when comparing it to its historical volatility, Jeju Bank is 2.1 times less risky than Hyundai Steel. It trades about 0.01 of its potential returns per unit of risk. Hyundai Steel is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,170,000  in Hyundai Steel on December 24, 2024 and sell it today you would earn a total of  710,000  from holding Hyundai Steel or generate 32.72% return on investment over 90 days.

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

Jeju Bank  vs.  Hyundai Steel

Jeju Bank

Risk-Adjusted Performance

Very Weak

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

Hyundai Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hyundai Steel are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hyundai Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jeju Bank and Hyundai Steel

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

The idea behind Jeju Bank and Hyundai 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.