Correlation Between Busan Industrial and SBI Investment

Can any of the company-specific risk be diversified away by investing in both Busan Industrial and SBI Investment 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 SBI Investment 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 SBI Investment KOREA, you can compare the effects of market volatilities on Busan Industrial and SBI Investment 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 SBI Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Busan Industrial and SBI Investment.

Diversification Opportunities for Busan Industrial and SBI Investment

0.8

Correlation Coefficient

Busan Industrial  SBI Investment

Very poor diversification

The 3 months correlation between Busan and SBI is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Busan Industrial Co and SBI Investment KOREA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Investment KOREA 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 SBI Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Investment KOREA has no effect on the direction of Busan Industrial i.e., Busan Industrial and SBI Investment go up and down completely randomly.

Pair Corralation between Busan Industrial and SBI Investment

Assuming the 90 days trading horizon Busan Industrial Co is expected to generate 1.49 times more return on investment than SBI Investment. However, Busan Industrial is 1.49 times more volatile than SBI Investment KOREA. It trades about -0.04 of its potential returns per unit of risk. SBI Investment KOREA is currently generating about -0.12 per unit of risk. If you would invest  7,450,000  in Busan Industrial Co on December 30, 2024 and sell it today you would lose (630,000) from holding Busan Industrial Co or give up 8.46% of portfolio value over 90 days.

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

Busan Industrial Co  vs.  SBI Investment KOREA

Busan Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Busan Industrial Co 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.

SBI Investment KOREA

Risk-Adjusted Performance

Very Weak

Over the last 90 days SBI Investment KOREA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Busan Industrial and SBI Investment

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

The idea behind Busan Industrial Co and SBI Investment KOREA 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.