Correlation Between HMM and Korea Petro

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

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

Diversification Opportunities for HMM and Korea Petro

-0.5

Correlation Coefficient

HMM  Korea Petro

Very good diversification

The 3 months correlation between HMM and Korea is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding HMM Co and Korea Petro Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Petro Chemical and HMM 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 HMM Co are associated (or correlated) with Korea Petro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Petro Chemical has no effect on the direction of HMM i.e., HMM and Korea Petro go up and down completely randomly.

Pair Corralation between HMM and Korea Petro

Assuming the 90 days trading horizon HMM Co is expected to generate 0.73 times more return on investment than Korea Petro. However, HMM Co is 1.37 times less risky than Korea Petro. It trades about 0.05 of its potential returns per unit of risk. Korea Petro Chemical is currently generating about -0.02 per unit of risk. If you would invest  1,705,000  in HMM Co on October 24, 2024 and sell it today you would earn a total of  100,000  from holding HMM Co or generate 5.87% return on investment over 90 days.

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

HMM Co  vs.  Korea Petro Chemical

HMM Co

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HMM Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HMM may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Korea Petro Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with HMM and Korea Petro

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

The idea behind HMM Co and Korea Petro Chemical 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.