Correlation Between Kukdong Oil and Namhae Chemical

Can any of the company-specific risk be diversified away by investing in both Kukdong Oil and Namhae Chemical 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 Kukdong Oil and Namhae Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kukdong Oil Chemicals and Namhae Chemical, you can compare the effects of market volatilities on Kukdong Oil and Namhae Chemical 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 Kukdong Oil with a short position of Namhae Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kukdong Oil and Namhae Chemical.

Diversification Opportunities for Kukdong Oil and Namhae Chemical

0.75

Correlation Coefficient

Kukdong Oil  Namhae Chemical

Poor diversification

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

Pair Corralation between Kukdong Oil and Namhae Chemical

Assuming the 90 days trading horizon Kukdong Oil Chemicals is expected to under-perform the Namhae Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Kukdong Oil Chemicals is 1.28 times less risky than Namhae Chemical. The stock trades about -0.25 of its potential returns per unit of risk. The Namhae Chemical is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  649,000  in Namhae Chemical on September 3, 2024 and sell it today you would lose (14,000) from holding Namhae Chemical or give up 2.16% of portfolio value over 90 days.

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

Kukdong Oil Chemicals  vs.  Namhae Chemical

Kukdong Oil Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kukdong Oil Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Kukdong Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Namhae Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Namhae Chemical 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.

Pair Trading with Kukdong Oil and Namhae Chemical

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

The idea behind Kukdong Oil Chemicals and Namhae Chemical 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.