Correlation Between Busan Industrial and Korean Air

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

By analyzing existing cross correlation between Busan Industrial Co and Korean Air Lines, you can compare the effects of market volatilities on Busan Industrial and Korean Air 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 Industrial with a short position of Korean Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Busan Industrial and Korean Air.

Diversification Opportunities for Busan Industrial and Korean Air

-0.19

Correlation Coefficient

Busan Industrial  Korean Air

Good diversification

The 3 months correlation between Busan and Korean is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Busan Industrial Co and Korean Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Air Lines and Busan Industrial 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 Industrial Co are associated (or correlated) with Korean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Air Lines has no effect on the direction of Busan Industrial i.e., Busan Industrial and Korean Air go up and down completely randomly.

Pair Corralation between Busan Industrial and Korean Air

Assuming the 90 days trading horizon Busan Industrial Co is expected to generate 2.12 times more return on investment than Korean Air. However, Busan Industrial is 2.12 times more volatile than Korean Air Lines. It trades about 0.13 of its potential returns per unit of risk. Korean Air Lines is currently generating about -0.03 per unit of risk. If you would invest  6,119,588  in Busan Industrial Co on November 29, 2024 and sell it today you would earn a total of  1,710,412  from holding Busan Industrial Co or generate 27.95% return on investment over 90 days.

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

Busan Industrial Co  vs.  Korean Air Lines

Busan Industrial

Risk-Adjusted Performance

OK

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

Korean Air Lines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Korean Air Lines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Korean Air 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 Industrial and Korean Air

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

The idea behind Busan Industrial Co and Korean Air Lines 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.