Correlation Between Choil Aluminum and Hanwha Solutions

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

By analyzing existing cross correlation between Choil Aluminum and Hanwha Solutions, you can compare the effects of market volatilities on Choil Aluminum and Hanwha Solutions 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 Choil Aluminum with a short position of Hanwha Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Choil Aluminum and Hanwha Solutions.

Diversification Opportunities for Choil Aluminum and Hanwha Solutions

0.82

Correlation Coefficient

Choil Aluminum  Hanwha Solutions

Very poor diversification

The 3 months correlation between Choil and Hanwha is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Choil Aluminum and Hanwha Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanwha Solutions and Choil Aluminum 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 Choil Aluminum are associated (or correlated) with Hanwha Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanwha Solutions has no effect on the direction of Choil Aluminum i.e., Choil Aluminum and Hanwha Solutions go up and down completely randomly.

Pair Corralation between Choil Aluminum and Hanwha Solutions

Assuming the 90 days trading horizon Choil Aluminum is expected to generate 1.79 times less return on investment than Hanwha Solutions. But when comparing it to its historical volatility, Choil Aluminum is 2.18 times less risky than Hanwha Solutions. It trades about 0.12 of its potential returns per unit of risk. Hanwha Solutions is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,612,000  in Hanwha Solutions on December 29, 2024 and sell it today you would earn a total of  306,000  from holding Hanwha Solutions or generate 18.98% return on investment over 90 days.

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

Choil Aluminum  vs.  Hanwha Solutions

Choil Aluminum

Risk-Adjusted Performance

OK

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

Hanwha Solutions

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hanwha Solutions are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hanwha Solutions sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Choil Aluminum and Hanwha Solutions

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

The idea behind Choil Aluminum and Hanwha Solutions 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.