Correlation Between Hanwha Solutions and POSCO Holdings

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

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

Diversification Opportunities for Hanwha Solutions and POSCO Holdings

-0.43

Correlation Coefficient

Hanwha Solutions  POSCO Holdings

Very good diversification

The 3 months correlation between Hanwha and POSCO is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Hanwha Solutions and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings and Hanwha Solutions 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 Hanwha Solutions are associated (or correlated) with POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of Hanwha Solutions i.e., Hanwha Solutions and POSCO Holdings go up and down completely randomly.

Pair Corralation between Hanwha Solutions and POSCO Holdings

Assuming the 90 days trading horizon Hanwha Solutions is expected to generate 1.58 times more return on investment than POSCO Holdings. However, Hanwha Solutions is 1.58 times more volatile than POSCO Holdings. It trades about 0.11 of its potential returns per unit of risk. POSCO Holdings is currently generating about -0.02 per unit of risk. If you would invest  1,676,876  in Hanwha Solutions on November 28, 2024 and sell it today you would earn a total of  413,124  from holding Hanwha Solutions or generate 24.64% return on investment over 90 days.

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

Hanwha Solutions  vs.  POSCO Holdings

Hanwha Solutions

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hanwha Solutions are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hanwha Solutions sustained solid returns over the last few months and may actually be approaching a breakup point.

POSCO Holdings

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hanwha Solutions and POSCO Holdings

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

The idea behind Hanwha Solutions and POSCO Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.