Correlation Between COWAY and Korean Air

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

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

Diversification Opportunities for COWAY and Korean Air

-0.3

Correlation Coefficient

COWAY  Korean Air

Very good diversification

The 3 months correlation between COWAY and Korean is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding COWAY Co and Korean Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Air Lines and COWAY 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 COWAY Co are associated (or correlated) with Korean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Air Lines has no effect on the direction of COWAY i.e., COWAY and Korean Air go up and down completely randomly.

Pair Corralation between COWAY and Korean Air

Assuming the 90 days trading horizon COWAY Co is expected to generate 2.47 times more return on investment than Korean Air. However, COWAY is 2.47 times more volatile than Korean Air Lines. It trades about 0.06 of its potential returns per unit of risk. Korean Air Lines is currently generating about -0.01 per unit of risk. If you would invest  5,400,000  in COWAY Co on September 4, 2024 and sell it today you would earn a total of  1,620,000  from holding COWAY Co or generate 30.0% return on investment over 90 days.

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

COWAY Co  vs.  Korean Air Lines

COWAY

Risk-Adjusted Performance

4 of 100

Insignificant

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

Korean Air Lines

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Air may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with COWAY and Korean Air

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

The idea behind COWAY Co and Korean Air Lines 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.