Correlation Between Kukdong Oil and APS Holdings

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

Diversification Opportunities for Kukdong Oil and APS Holdings

0.07

Correlation Coefficient

Kukdong Oil  APS Holdings

Significant diversification

The 3 months correlation between Kukdong and APS is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Kukdong Oil Chemicals and APS Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APS Holdings 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 APS Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APS Holdings has no effect on the direction of Kukdong Oil i.e., Kukdong Oil and APS Holdings go up and down completely randomly.

Pair Corralation between Kukdong Oil and APS Holdings

Assuming the 90 days trading horizon Kukdong Oil Chemicals is expected to generate 0.8 times more return on investment than APS Holdings. However, Kukdong Oil Chemicals is 1.25 times less risky than APS Holdings. It trades about 0.02 of its potential returns per unit of risk. APS Holdings is currently generating about -0.03 per unit of risk. If you would invest  332,473  in Kukdong Oil Chemicals on October 7, 2024 and sell it today you would earn a total of  20,027  from holding Kukdong Oil Chemicals or generate 6.02% return on investment over 90 days.

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

Kukdong Oil Chemicals  vs.  APS Holdings

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.

APS Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Kukdong Oil and APS Holdings

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

The idea behind Kukdong Oil Chemicals and APS Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.