Correlation Between Ni Steel and Korea Steel

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

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

Diversification Opportunities for Ni Steel and Korea Steel

-0.51

Correlation Coefficient

Ni Steel  Korea Steel

Excellent diversification

The 3 months correlation between 008260 and Korea is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ni Steel and Korea Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Steel and Ni 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 Ni Steel are associated (or correlated) with Korea Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Steel has no effect on the direction of Ni Steel i.e., Ni Steel and Korea Steel go up and down completely randomly.

Pair Corralation between Ni Steel and Korea Steel

Assuming the 90 days trading horizon Ni Steel is expected to under-perform the Korea Steel. But the stock apears to be less risky and, when comparing its historical volatility, Ni Steel is 1.28 times less risky than Korea Steel. The stock trades about -0.03 of its potential returns per unit of risk. The Korea Steel Co is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  140,800  in Korea Steel Co on November 29, 2024 and sell it today you would earn a total of  24,700  from holding Korea Steel Co or generate 17.54% return on investment over 90 days.

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

Ni Steel  vs.  Korea Steel Co

Ni Steel

Risk-Adjusted Performance

Very Weak

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

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.

Pair Trading with Ni Steel and Korea Steel

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

The idea behind Ni Steel and Korea Steel 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.