Correlation Between Korea Steel and SK Holdings

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

Diversification Opportunities for Korea Steel and SK Holdings

0.35

Correlation Coefficient

Korea Steel  SK Holdings

Weak diversification

The 3 months correlation between Korea and 034730 is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Korea Steel Co and SK Holdings Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK Holdings 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 SK Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK Holdings has no effect on the direction of Korea Steel i.e., Korea Steel and SK Holdings go up and down completely randomly.

Pair Corralation between Korea Steel and SK Holdings

Assuming the 90 days trading horizon Korea Steel Co is expected to generate 0.67 times more return on investment than SK Holdings. However, Korea Steel Co is 1.5 times less risky than SK Holdings. It trades about -0.03 of its potential returns per unit of risk. SK Holdings Co is currently generating about -0.02 per unit of risk. If you would invest  213,000  in Korea Steel Co on October 4, 2024 and sell it today you would lose (44,500) from holding Korea Steel Co or give up 20.89% of portfolio value over 90 days.

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

Korea Steel Co  vs.  SK Holdings Co

Korea Steel

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Steel Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

SK Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SK Holdings Co 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 SK Holdings

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

The idea behind Korea Steel Co and SK Holdings 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.