Correlation Between Busan Industrial and Formetal

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

Diversification Opportunities for Busan Industrial and Formetal

0.61

Correlation Coefficient

Busan Industrial  Formetal

Poor diversification

The 3 months correlation between Busan and Formetal is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Busan Industrial Co and Formetal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formetal 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 Formetal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formetal has no effect on the direction of Busan Industrial i.e., Busan Industrial and Formetal go up and down completely randomly.

Pair Corralation between Busan Industrial and Formetal

Assuming the 90 days trading horizon Busan Industrial is expected to generate 1.07 times less return on investment than Formetal. But when comparing it to its historical volatility, Busan Industrial Co is 1.09 times less risky than Formetal. It trades about 0.23 of its potential returns per unit of risk. Formetal Co is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  269,536  in Formetal Co on October 5, 2024 and sell it today you would earn a total of  68,464  from holding Formetal Co or generate 25.4% return on investment over 90 days.

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

Busan Industrial Co  vs.  Formetal 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.

Formetal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Formetal Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Formetal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Busan Industrial and Formetal

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

The idea behind Busan Industrial Co and Formetal 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.