Correlation Between Busan Industrial and Hankook Steel

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

Diversification Opportunities for Busan Industrial and Hankook Steel

0.19

Correlation Coefficient

Busan Industrial  Hankook Steel

Average diversification

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

Pair Corralation between Busan Industrial and Hankook Steel

Assuming the 90 days trading horizon Busan Industrial Co is expected to generate 1.38 times more return on investment than Hankook Steel. However, Busan Industrial is 1.38 times more volatile than Hankook Steel Co. It trades about 0.14 of its potential returns per unit of risk. Hankook Steel Co is currently generating about 0.02 per unit of risk. If you would invest  5,100,000  in Busan Industrial Co on September 23, 2024 and sell it today you would earn a total of  2,760,000  from holding Busan Industrial Co or generate 54.12% return on investment over 90 days.

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

Busan Industrial Co  vs.  Hankook Steel Co

Busan Industrial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Busan Industrial Co are ranked lower than 11 (%) 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.

Hankook Steel

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hankook Steel Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hankook Steel 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 Hankook Steel

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

The idea behind Busan Industrial Co and Hankook Steel Co 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.