Correlation Between Busan Industrial and Jin Air

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

Diversification Opportunities for Busan Industrial and Jin Air

0.75

Correlation Coefficient

Busan Industrial  Jin Air

Poor diversification

The 3 months correlation between Busan and Jin is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Busan Industrial Co and Jin Air Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jin Air 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 Jin Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jin Air has no effect on the direction of Busan Industrial i.e., Busan Industrial and Jin Air go up and down completely randomly.

Pair Corralation between Busan Industrial and Jin Air

Assuming the 90 days trading horizon Busan Industrial Co is expected to under-perform the Jin Air. In addition to that, Busan Industrial is 1.86 times more volatile than Jin Air Co. It trades about -0.03 of its total potential returns per unit of risk. Jin Air Co is currently generating about 0.0 per unit of volatility. If you would invest  962,000  in Jin Air Co on December 28, 2024 and sell it today you would lose (9,000) from holding Jin Air Co or give up 0.94% of portfolio value over 90 days.

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

Busan Industrial Co  vs.  Jin Air Co

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 somewhat strong basic indicators, Busan Industrial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jin Air

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Busan Industrial Co and Jin Air 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.