Correlation Between Korea Petro and SK Chemicals

Can any of the company-specific risk be diversified away by investing in both Korea Petro and SK Chemicals 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 SK Chemicals 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 SK Chemicals Co, you can compare the effects of market volatilities on Korea Petro and SK Chemicals 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 SK Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Petro and SK Chemicals.

Diversification Opportunities for Korea Petro and SK Chemicals

-0.38

Correlation Coefficient

Korea Petro  SK Chemicals

Very good diversification

The 3 months correlation between Korea and 285130 is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Korea Petro Chemical and SK Chemicals Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK Chemicals 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 SK Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK Chemicals has no effect on the direction of Korea Petro i.e., Korea Petro and SK Chemicals go up and down completely randomly.

Pair Corralation between Korea Petro and SK Chemicals

Assuming the 90 days trading horizon Korea Petro Chemical is expected to generate 1.83 times more return on investment than SK Chemicals. However, Korea Petro is 1.83 times more volatile than SK Chemicals Co. It trades about 0.14 of its potential returns per unit of risk. SK Chemicals Co is currently generating about -0.07 per unit of risk. If you would invest  7,857,949  in Korea Petro Chemical on December 23, 2024 and sell it today you would earn a total of  2,042,051  from holding Korea Petro Chemical or generate 25.99% return on investment over 90 days.

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

Korea Petro Chemical  vs.  SK Chemicals Co

Korea Petro Chemical

Risk-Adjusted Performance

OK

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.

SK Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days SK Chemicals Co 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.

Pair Trading with Korea Petro and SK Chemicals

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

The idea behind Korea Petro Chemical and SK Chemicals Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.