Correlation Between Korea Alcohol and Kosdaq Composite

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

Diversification Opportunities for Korea Alcohol and Kosdaq Composite

0.85

Correlation Coefficient

Korea Alcohol  Kosdaq Composite

Very poor diversification

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

Pair Corralation between Korea Alcohol and Kosdaq Composite

Assuming the 90 days trading horizon Korea Alcohol Industrial is expected to under-perform the Kosdaq Composite. But the stock apears to be less risky and, when comparing its historical volatility, Korea Alcohol Industrial is 1.49 times less risky than Kosdaq Composite. The stock trades about -0.15 of its potential returns per unit of risk. The Kosdaq Composite Index is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  73,175  in Kosdaq Composite Index on September 4, 2024 and sell it today you would lose (5,522) from holding Kosdaq Composite Index or give up 7.55% of portfolio value over 90 days.

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

Korea Alcohol Industrial  vs.  Kosdaq Composite Index

Pair Trading with Korea Alcohol and Kosdaq Composite

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

The idea behind Korea Alcohol Industrial and Kosdaq Composite Index 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.