Correlation Between Korea Alcohol and HMM

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

By analyzing existing cross correlation between Korea Alcohol Industrial and HMM Co, you can compare the effects of market volatilities on Korea Alcohol and HMM 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 Korea Alcohol with a short position of HMM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Alcohol and HMM.

Diversification Opportunities for Korea Alcohol and HMM

-0.04

Correlation Coefficient

Korea Alcohol  HMM

Good diversification

The 3 months correlation between Korea and HMM is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Korea Alcohol Industrial and HMM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMM Co and Korea Alcohol 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 Korea Alcohol Industrial are associated (or correlated) with HMM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMM Co has no effect on the direction of Korea Alcohol i.e., Korea Alcohol and HMM go up and down completely randomly.

Pair Corralation between Korea Alcohol and HMM

Assuming the 90 days trading horizon Korea Alcohol Industrial is expected to under-perform the HMM. But the stock apears to be less risky and, when comparing its historical volatility, Korea Alcohol Industrial is 1.21 times less risky than HMM. The stock trades about -0.01 of its potential returns per unit of risk. The HMM Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,106,078  in HMM Co on October 27, 2024 and sell it today you would lose (242,078) from holding HMM Co or give up 11.49% of portfolio value over 90 days.

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

Korea Alcohol Industrial  vs.  HMM Co

Korea Alcohol Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

HMM Co

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HMM Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HMM may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Korea Alcohol and HMM

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

The idea behind Korea Alcohol Industrial and HMM 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.