Correlation Between Korea Petro and Kg Chemical

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

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

Diversification Opportunities for Korea Petro and Kg Chemical

0.6

Correlation Coefficient

Korea Petro  Kg Chemical

Poor diversification

The 3 months correlation between Korea and 001390 is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Korea Petro Chemical and Kg Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kg Chemical and Korea Petro 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 Korea Petro Chemical are associated (or correlated) with Kg Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kg Chemical has no effect on the direction of Korea Petro i.e., Korea Petro and Kg Chemical go up and down completely randomly.

Pair Corralation between Korea Petro and Kg Chemical

Assuming the 90 days trading horizon Korea Petro Chemical is expected to generate 2.15 times more return on investment than Kg Chemical. However, Korea Petro is 2.15 times more volatile than Kg Chemical. It trades about 0.13 of its potential returns per unit of risk. Kg Chemical is currently generating about 0.05 per unit of risk. If you would invest  7,700,000  in Korea Petro Chemical on December 25, 2024 and sell it today you would earn a total of  1,870,000  from holding Korea Petro Chemical or generate 24.29% return on investment over 90 days.

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

Korea Petro Chemical  vs.  Kg Chemical

Korea Petro Chemical

Risk-Adjusted Performance

Good

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

Kg Chemical

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Korea Petro and Kg Chemical

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

The idea behind Korea Petro Chemical and Kg Chemical 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.