Correlation Between Jeju Bank and Busan Ind

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

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

Diversification Opportunities for Jeju Bank and Busan Ind

0.1

Correlation Coefficient

Jeju Bank  Busan Ind

Average diversification

The 3 months correlation between Jeju and Busan is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Jeju Bank and Busan Ind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Busan Ind 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 Busan Ind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Busan Ind has no effect on the direction of Jeju Bank i.e., Jeju Bank and Busan Ind go up and down completely randomly.

Pair Corralation between Jeju Bank and Busan Ind

Assuming the 90 days trading horizon Jeju Bank is expected to generate 13.45 times less return on investment than Busan Ind. But when comparing it to its historical volatility, Jeju Bank is 1.66 times less risky than Busan Ind. It trades about 0.01 of its potential returns per unit of risk. Busan Ind is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,940,186  in Busan Ind on December 2, 2024 and sell it today you would earn a total of  1,549,814  from holding Busan Ind or generate 26.09% return on investment over 90 days.

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

Jeju Bank  vs.  Busan Ind

Jeju Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jeju Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Busan Ind

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Busan Ind are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Busan Ind sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jeju Bank and Busan Ind

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

The idea behind Jeju Bank and Busan Ind 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.