Correlation Between Youl Chon and Korea Air

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

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

Diversification Opportunities for Youl Chon and Korea Air

0.6

Correlation Coefficient

Youl Chon  Korea Air

Poor diversification

The 3 months correlation between Youl and Korea is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Youl Chon Chemical and Korea Air Svc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Air Svc and Youl Chon 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 Youl Chon Chemical are associated (or correlated) with Korea Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Air Svc has no effect on the direction of Youl Chon i.e., Youl Chon and Korea Air go up and down completely randomly.

Pair Corralation between Youl Chon and Korea Air

Assuming the 90 days trading horizon Youl Chon Chemical is expected to under-perform the Korea Air. In addition to that, Youl Chon is 1.47 times more volatile than Korea Air Svc. It trades about -0.02 of its total potential returns per unit of risk. Korea Air Svc is currently generating about 0.05 per unit of volatility. If you would invest  4,082,579  in Korea Air Svc on September 4, 2024 and sell it today you would earn a total of  1,987,421  from holding Korea Air Svc or generate 48.68% return on investment over 90 days.

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

Youl Chon Chemical  vs.  Korea Air Svc

Youl Chon Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Youl Chon Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Youl Chon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Korea Air Svc

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Air Svc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Youl Chon and Korea Air

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

The idea behind Youl Chon Chemical and Korea Air Svc 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.