Correlation Between Jeju Bank and Korea Air

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

By analyzing existing cross correlation between Jeju Bank and Korea Air Svc, you can compare the effects of market volatilities on Jeju Bank and Korea Air 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 Korea Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jeju Bank and Korea Air.

Diversification Opportunities for Jeju Bank and Korea Air

0.7

Correlation Coefficient

Jeju Bank  Korea Air

Poor diversification

The 3 months correlation between Jeju and Korea is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Jeju Bank and Korea Air Svc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Air Svc 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 Korea Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Air Svc has no effect on the direction of Jeju Bank i.e., Jeju Bank and Korea Air go up and down completely randomly.

Pair Corralation between Jeju Bank and Korea Air

Assuming the 90 days trading horizon Jeju Bank is expected to generate 0.7 times more return on investment than Korea Air. However, Jeju Bank is 1.42 times less risky than Korea Air. It trades about -0.18 of its potential returns per unit of risk. Korea Air Svc is currently generating about -0.16 per unit of risk. If you would invest  841,936  in Jeju Bank on December 30, 2024 and sell it today you would lose (85,936) from holding Jeju Bank or give up 10.21% of portfolio value over 90 days.

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

Jeju Bank  vs.  Korea Air Svc

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 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.

Korea Air Svc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Korea Air Svc 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Jeju Bank and Korea Air

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

The idea behind Jeju Bank and Korea Air Svc 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.