Correlation Between Korea Shipbuilding and Korea Alcohol

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

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

Diversification Opportunities for Korea Shipbuilding and Korea Alcohol

-0.44

Correlation Coefficient

Korea Shipbuilding  Korea Alcohol

Very good diversification

The 3 months correlation between Korea and Korea is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Korea Shipbuilding Offshore and Korea Alcohol Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Alcohol Industrial and Korea Shipbuilding 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 Shipbuilding Offshore are associated (or correlated) with Korea Alcohol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Alcohol Industrial has no effect on the direction of Korea Shipbuilding i.e., Korea Shipbuilding and Korea Alcohol go up and down completely randomly.

Pair Corralation between Korea Shipbuilding and Korea Alcohol

Assuming the 90 days trading horizon Korea Shipbuilding Offshore is expected to generate 2.74 times more return on investment than Korea Alcohol. However, Korea Shipbuilding is 2.74 times more volatile than Korea Alcohol Industrial. It trades about 0.09 of its potential returns per unit of risk. Korea Alcohol Industrial is currently generating about -0.17 per unit of risk. If you would invest  18,070,000  in Korea Shipbuilding Offshore on September 3, 2024 and sell it today you would earn a total of  2,380,000  from holding Korea Shipbuilding Offshore or generate 13.17% return on investment over 90 days.

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

Korea Shipbuilding Offshore  vs.  Korea Alcohol Industrial

Korea Shipbuilding

Risk-Adjusted Performance

7 of 100

OK

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

Korea Alcohol Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Alcohol Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Korea Shipbuilding and Korea Alcohol

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

The idea behind Korea Shipbuilding Offshore and Korea Alcohol Industrial 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.