Correlation Between Korea Alcohol and Youngchang Chemical

Can any of the company-specific risk be diversified away by investing in both Korea Alcohol and Youngchang 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 Korea Alcohol and Youngchang Chemical 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 Youngchang Chemical Co, you can compare the effects of market volatilities on Korea Alcohol and Youngchang 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 Korea Alcohol with a short position of Youngchang Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Alcohol and Youngchang Chemical.

Diversification Opportunities for Korea Alcohol and Youngchang Chemical

0.85

Correlation Coefficient

Korea Alcohol  Youngchang Chemical

Very poor diversification

The 3 months correlation between Korea and Youngchang is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Korea Alcohol Industrial and Youngchang Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Youngchang Chemical 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 Youngchang Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Youngchang Chemical has no effect on the direction of Korea Alcohol i.e., Korea Alcohol and Youngchang Chemical go up and down completely randomly.

Pair Corralation between Korea Alcohol and Youngchang Chemical

Assuming the 90 days trading horizon Korea Alcohol is expected to generate 2.52 times less return on investment than Youngchang Chemical. But when comparing it to its historical volatility, Korea Alcohol Industrial is 3.68 times less risky than Youngchang Chemical. It trades about 0.8 of its potential returns per unit of risk. Youngchang Chemical Co is currently generating about 0.55 of returns per unit of risk over similar time horizon. If you would invest  1,105,000  in Youngchang Chemical Co on October 10, 2024 and sell it today you would earn a total of  566,000  from holding Youngchang Chemical Co or generate 51.22% return on investment over 90 days.

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

Korea Alcohol Industrial  vs.  Youngchang Chemical 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.

Youngchang Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Korea Alcohol and Youngchang Chemical

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

The idea behind Korea Alcohol Industrial and Youngchang Chemical 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.