Correlation Between Hankuk Steel and Nam Hwa

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

Diversification Opportunities for Hankuk Steel and Nam Hwa

0.35

Correlation Coefficient

Hankuk Steel  Nam Hwa

Weak diversification

The 3 months correlation between Hankuk and Nam is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Hankuk Steel Wire and Nam Hwa Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nam Hwa Construction 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 Nam Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nam Hwa Construction has no effect on the direction of Hankuk Steel i.e., Hankuk Steel and Nam Hwa go up and down completely randomly.

Pair Corralation between Hankuk Steel and Nam Hwa

Assuming the 90 days trading horizon Hankuk Steel Wire is expected to generate 1.48 times more return on investment than Nam Hwa. However, Hankuk Steel is 1.48 times more volatile than Nam Hwa Construction. It trades about 0.2 of its potential returns per unit of risk. Nam Hwa Construction is currently generating about 0.02 per unit of risk. If you would invest  279,000  in Hankuk Steel Wire on October 24, 2024 and sell it today you would earn a total of  181,000  from holding Hankuk Steel Wire or generate 64.87% 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.  Nam Hwa Construction

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.

Nam Hwa Construction

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Hankuk Steel and Nam Hwa

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

The idea behind Hankuk Steel Wire and Nam Hwa Construction 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.