Correlation Between Korea Steel and Jeju Beer

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

Diversification Opportunities for Korea Steel and Jeju Beer

0.24

Correlation Coefficient

Korea Steel  Jeju Beer

Modest diversification

The 3 months correlation between Korea and Jeju is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Korea Steel Co and Jeju Beer Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jeju Beer 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 Jeju Beer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jeju Beer has no effect on the direction of Korea Steel i.e., Korea Steel and Jeju Beer go up and down completely randomly.

Pair Corralation between Korea Steel and Jeju Beer

Assuming the 90 days trading horizon Korea Steel Co is expected to under-perform the Jeju Beer. But the stock apears to be less risky and, when comparing its historical volatility, Korea Steel Co is 2.41 times less risky than Jeju Beer. The stock trades about -0.05 of its potential returns per unit of risk. The Jeju Beer Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  309,500  in Jeju Beer Co on August 31, 2024 and sell it today you would earn a total of  15,500  from holding Jeju Beer Co or generate 5.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Korea Steel Co  vs.  Jeju Beer Co

Korea Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Jeju Beer

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jeju Beer Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jeju Beer may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Korea Steel and Jeju Beer

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

The idea behind Korea Steel Co and Jeju Beer 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.