Correlation Between Kukdong Oil and InnoTherapy

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

Diversification Opportunities for Kukdong Oil and InnoTherapy

0.23

Correlation Coefficient

Kukdong Oil  InnoTherapy

Modest diversification

The 3 months correlation between Kukdong and InnoTherapy is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Kukdong Oil Chemicals and InnoTherapy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InnoTherapy 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 InnoTherapy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InnoTherapy has no effect on the direction of Kukdong Oil i.e., Kukdong Oil and InnoTherapy go up and down completely randomly.

Pair Corralation between Kukdong Oil and InnoTherapy

Assuming the 90 days trading horizon Kukdong Oil Chemicals is expected to generate 0.26 times more return on investment than InnoTherapy. However, Kukdong Oil Chemicals is 3.9 times less risky than InnoTherapy. It trades about -0.14 of its potential returns per unit of risk. InnoTherapy is currently generating about -0.1 per unit of risk. If you would invest  349,500  in Kukdong Oil Chemicals on November 19, 2024 and sell it today you would lose (4,500) from holding Kukdong Oil Chemicals or give up 1.29% of portfolio value over 90 days.

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

Kukdong Oil Chemicals  vs.  InnoTherapy

Kukdong Oil Chemicals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kukdong Oil Chemicals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

InnoTherapy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in InnoTherapy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, InnoTherapy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kukdong Oil and InnoTherapy

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

The idea behind Kukdong Oil Chemicals and InnoTherapy 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.