Correlation Between Korea Steel and Top Material

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

Diversification Opportunities for Korea Steel and Top Material

0.22

Correlation Coefficient

Korea Steel  Top Material

Modest diversification

The 3 months correlation between Korea and Top is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Korea Steel Co and Top Material Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Top Material 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 Top Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Top Material has no effect on the direction of Korea Steel i.e., Korea Steel and Top Material go up and down completely randomly.

Pair Corralation between Korea Steel and Top Material

Assuming the 90 days trading horizon Korea Steel is expected to generate 1.18 times less return on investment than Top Material. But when comparing it to its historical volatility, Korea Steel Co is 2.68 times less risky than Top Material. It trades about 0.15 of its potential returns per unit of risk. Top Material Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,875,000  in Top Material Co on December 1, 2024 and sell it today you would earn a total of  420,000  from holding Top Material Co or generate 14.61% 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.  Top Material Co

Korea Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Steel Co are ranked lower than 11 (%) 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.

Top Material

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Top Material Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Top Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Steel and Top Material

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

The idea behind Korea Steel Co and Top Material 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.