Correlation Between Hankuk Steel and Hyundai

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

By analyzing existing cross correlation between Hankuk Steel Wire and Hyundai Motor, you can compare the effects of market volatilities on Hankuk Steel and Hyundai 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 Hankuk Steel with a short position of Hyundai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hankuk Steel and Hyundai.

Diversification Opportunities for Hankuk Steel and Hyundai

-0.24

Correlation Coefficient

Hankuk Steel  Hyundai

Very good diversification

The 3 months correlation between Hankuk and Hyundai is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Hankuk Steel Wire and Hyundai Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor and Hankuk Steel 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 Hankuk Steel Wire are associated (or correlated) with Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of Hankuk Steel i.e., Hankuk Steel and Hyundai go up and down completely randomly.

Pair Corralation between Hankuk Steel and Hyundai

Assuming the 90 days trading horizon Hankuk Steel is expected to generate 2.02 times less return on investment than Hyundai. In addition to that, Hankuk Steel is 1.11 times more volatile than Hyundai Motor. It trades about 0.02 of its total potential returns per unit of risk. Hyundai Motor is currently generating about 0.04 per unit of volatility. If you would invest  15,779,900  in Hyundai Motor on October 24, 2024 and sell it today you would earn a total of  4,870,100  from holding Hyundai Motor or generate 30.86% return on investment over 90 days.

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

Hankuk Steel Wire  vs.  Hyundai Motor

Hankuk Steel Wire

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hankuk Steel Wire are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hankuk Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Hyundai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Hankuk Steel and Hyundai

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

The idea behind Hankuk Steel Wire and Hyundai Motor 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.