Correlation Between Korea Steel and Hyundai Steel

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

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

Diversification Opportunities for Korea Steel and Hyundai Steel

0.27

Correlation Coefficient

Korea Steel  Hyundai Steel

Modest diversification

The 3 months correlation between Korea and Hyundai is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Korea Steel Co and Hyundai Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Steel and Korea Steel 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 Steel Co are associated (or correlated) with Hyundai Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Steel has no effect on the direction of Korea Steel i.e., Korea Steel and Hyundai Steel go up and down completely randomly.

Pair Corralation between Korea Steel and Hyundai Steel

Assuming the 90 days trading horizon Korea Steel Co is expected to generate 0.9 times more return on investment than Hyundai Steel. However, Korea Steel Co is 1.12 times less risky than Hyundai Steel. It trades about 0.07 of its potential returns per unit of risk. Hyundai Steel is currently generating about -0.17 per unit of risk. If you would invest  150,300  in Korea Steel Co on October 5, 2024 and sell it today you would earn a total of  13,700  from holding Korea Steel Co or generate 9.12% return on investment over 90 days.

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

Korea Steel Co  vs.  Hyundai Steel

Korea Steel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Steel Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Steel may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hyundai Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Steel 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Korea Steel and Hyundai Steel

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

The idea behind Korea Steel Co and Hyundai Steel 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.