Correlation Between Busan Ind and Ssangyong Materials

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

By analyzing existing cross correlation between Busan Ind and Ssangyong Materials Corp, you can compare the effects of market volatilities on Busan Ind and Ssangyong Materials 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 Busan Ind with a short position of Ssangyong Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Busan Ind and Ssangyong Materials.

Diversification Opportunities for Busan Ind and Ssangyong Materials

-0.25

Correlation Coefficient

Busan Ind  Ssangyong Materials

Very good diversification

The 3 months correlation between Busan and Ssangyong is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Busan Ind and Ssangyong Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ssangyong Materials Corp and Busan Ind 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 Busan Ind are associated (or correlated) with Ssangyong Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ssangyong Materials Corp has no effect on the direction of Busan Ind i.e., Busan Ind and Ssangyong Materials go up and down completely randomly.

Pair Corralation between Busan Ind and Ssangyong Materials

Assuming the 90 days trading horizon Busan Ind is expected to generate 1.64 times less return on investment than Ssangyong Materials. But when comparing it to its historical volatility, Busan Ind is 1.35 times less risky than Ssangyong Materials. It trades about 0.02 of its potential returns per unit of risk. Ssangyong Materials Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  248,339  in Ssangyong Materials Corp on October 15, 2024 and sell it today you would lose (6,339) from holding Ssangyong Materials Corp or give up 2.55% of portfolio value over 90 days.

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

Busan Ind  vs.  Ssangyong Materials Corp

Busan Ind

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Busan Ind are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Busan Ind sustained solid returns over the last few months and may actually be approaching a breakup point.

Ssangyong Materials Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ssangyong Materials Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ssangyong Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Busan Ind and Ssangyong Materials

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

The idea behind Busan Ind and Ssangyong Materials Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.