Correlation Between Hankuk Steel and Han Kook

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

Diversification Opportunities for Hankuk Steel and Han Kook

0.34

Correlation Coefficient

Hankuk Steel  Han Kook

Weak diversification

The 3 months correlation between Hankuk and Han is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Hankuk Steel Wire and Han Kook Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Han Kook Steel 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 Han Kook. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Han Kook Steel has no effect on the direction of Hankuk Steel i.e., Hankuk Steel and Han Kook go up and down completely randomly.

Pair Corralation between Hankuk Steel and Han Kook

Assuming the 90 days trading horizon Hankuk Steel is expected to generate 3.57 times less return on investment than Han Kook. But when comparing it to its historical volatility, Hankuk Steel Wire is 3.96 times less risky than Han Kook. It trades about 0.09 of its potential returns per unit of risk. Han Kook Steel is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  198,700  in Han Kook Steel on August 31, 2024 and sell it today you would earn a total of  15,800  from holding Han Kook Steel or generate 7.95% return on investment over 90 days.

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

Hankuk Steel Wire  vs.  Han Kook Steel

Hankuk Steel Wire

Risk-Adjusted Performance

0 of 100

Very Weak

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

Han Kook Steel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Han Kook Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Han Kook sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hankuk Steel and Han Kook

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

The idea behind Hankuk Steel Wire and Han Kook Steel 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.