Correlation Between Industrial Bank and Seoul Food

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

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

Diversification Opportunities for Industrial Bank and Seoul Food

-0.36

Correlation Coefficient

Industrial Bank  Seoul Food

Very good diversification

The 3 months correlation between Industrial and Seoul is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Bank and Seoul Food Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seoul Food Industrial and Industrial Bank 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 Industrial Bank are associated (or correlated) with Seoul Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seoul Food Industrial has no effect on the direction of Industrial Bank i.e., Industrial Bank and Seoul Food go up and down completely randomly.

Pair Corralation between Industrial Bank and Seoul Food

Assuming the 90 days trading horizon Industrial Bank is expected to under-perform the Seoul Food. But the stock apears to be less risky and, when comparing its historical volatility, Industrial Bank is 1.06 times less risky than Seoul Food. The stock trades about -0.05 of its potential returns per unit of risk. The Seoul Food Industrial is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  14,800  in Seoul Food Industrial on October 12, 2024 and sell it today you would earn a total of  300.00  from holding Seoul Food Industrial or generate 2.03% return on investment over 90 days.

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

Industrial Bank  vs.  Seoul Food Industrial

Industrial Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Industrial Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Seoul Food Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Industrial Bank and Seoul Food

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

The idea behind Industrial Bank and Seoul Food Industrial 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.