Correlation Between Korea Alcohol and KNOTUS CoLtd

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

Diversification Opportunities for Korea Alcohol and KNOTUS CoLtd

0.61

Correlation Coefficient

Korea Alcohol  KNOTUS CoLtd

Poor diversification

The 3 months correlation between Korea and KNOTUS is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Korea Alcohol Industrial and KNOTUS CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KNOTUS CoLtd 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 KNOTUS CoLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KNOTUS CoLtd has no effect on the direction of Korea Alcohol i.e., Korea Alcohol and KNOTUS CoLtd go up and down completely randomly.

Pair Corralation between Korea Alcohol and KNOTUS CoLtd

Assuming the 90 days trading horizon Korea Alcohol Industrial is expected to under-perform the KNOTUS CoLtd. But the stock apears to be less risky and, when comparing its historical volatility, Korea Alcohol Industrial is 2.18 times less risky than KNOTUS CoLtd. The stock trades about -0.04 of its potential returns per unit of risk. The KNOTUS CoLtd is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  220,000  in KNOTUS CoLtd on October 9, 2024 and sell it today you would earn a total of  21,000  from holding KNOTUS CoLtd or generate 9.55% return on investment over 90 days.

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

Korea Alcohol Industrial  vs.  KNOTUS CoLtd

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.

KNOTUS CoLtd

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KNOTUS CoLtd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KNOTUS CoLtd sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Alcohol and KNOTUS CoLtd

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

The idea behind Korea Alcohol Industrial and KNOTUS CoLtd 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.