Correlation Between Busan Ind and SDN

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

By analyzing existing cross correlation between Busan Ind and SDN Company, you can compare the effects of market volatilities on Busan Ind and SDN 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 SDN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Busan Ind and SDN.

Diversification Opportunities for Busan Ind and SDN

0.74

Correlation Coefficient

Busan Ind  SDN

Poor diversification

The 3 months correlation between Busan and SDN is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Busan Ind and SDN Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SDN Company 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 SDN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SDN Company has no effect on the direction of Busan Ind i.e., Busan Ind and SDN go up and down completely randomly.

Pair Corralation between Busan Ind and SDN

Assuming the 90 days trading horizon Busan Ind is expected to generate 1.38 times more return on investment than SDN. However, Busan Ind is 1.38 times more volatile than SDN Company. It trades about -0.04 of its potential returns per unit of risk. SDN Company is currently generating about -0.08 per unit of risk. If you would invest  7,450,000  in Busan Ind on December 30, 2024 and sell it today you would lose (630,000) from holding Busan Ind or give up 8.46% of portfolio value over 90 days.

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

Busan Ind  vs.  SDN Company

Busan Ind

Risk-Adjusted Performance

Very Weak

Over the last 90 days Busan Ind 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.

SDN Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days SDN Company 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 Busan Ind and SDN

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

The idea behind Busan Ind and SDN Company 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.