Correlation Between Jeju Bank and Hanjoo Light

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

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

Diversification Opportunities for Jeju Bank and Hanjoo Light

0.48

Correlation Coefficient

Jeju Bank  Hanjoo Light

Very weak diversification

The 3 months correlation between Jeju and Hanjoo is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Jeju Bank and Hanjoo Light Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanjoo Light Metal 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 Hanjoo Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanjoo Light Metal has no effect on the direction of Jeju Bank i.e., Jeju Bank and Hanjoo Light go up and down completely randomly.

Pair Corralation between Jeju Bank and Hanjoo Light

Assuming the 90 days trading horizon Jeju Bank is expected to under-perform the Hanjoo Light. But the stock apears to be less risky and, when comparing its historical volatility, Jeju Bank is 1.8 times less risky than Hanjoo Light. The stock trades about -0.18 of its potential returns per unit of risk. The Hanjoo Light Metal is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  75,600  in Hanjoo Light Metal on December 28, 2024 and sell it today you would lose (2,900) from holding Hanjoo Light Metal or give up 3.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

Jeju Bank  vs.  Hanjoo Light Metal

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.

Hanjoo Light Metal

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Jeju Bank and Hanjoo Light

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

The idea behind Jeju Bank and Hanjoo Light Metal 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.