Correlation Between KT and Hyundai Engineering

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

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

Diversification Opportunities for KT and Hyundai Engineering

0.6

Correlation Coefficient

KT  Hyundai Engineering

Poor diversification

The 3 months correlation between KT and Hyundai is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding KT Corp. and Hyundai Engineering Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Engineering and KT 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 KT Corporation are associated (or correlated) with Hyundai Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Engineering has no effect on the direction of KT i.e., KT and Hyundai Engineering go up and down completely randomly.

Pair Corralation between KT and Hyundai Engineering

Assuming the 90 days trading horizon KT Corporation is expected to generate 1.8 times more return on investment than Hyundai Engineering. However, KT is 1.8 times more volatile than Hyundai Engineering Plastics. It trades about 0.11 of its potential returns per unit of risk. Hyundai Engineering Plastics is currently generating about 0.02 per unit of risk. If you would invest  4,562,029  in KT Corporation on December 24, 2024 and sell it today you would earn a total of  412,971  from holding KT Corporation or generate 9.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

KT Corp.  vs.  Hyundai Engineering Plastics

KT Corporation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KT Corporation are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KT may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hyundai Engineering

Risk-Adjusted Performance

Insignificant

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

Pair Trading with KT and Hyundai Engineering

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

The idea behind KT Corporation and Hyundai Engineering Plastics 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.