Correlation Between Shinsegae Food and Kukdo Chemical

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

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

Diversification Opportunities for Shinsegae Food and Kukdo Chemical

0.71

Correlation Coefficient

Shinsegae Food  Kukdo Chemical

Poor diversification

The 3 months correlation between Shinsegae and Kukdo is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Shinsegae Food and Kukdo Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kukdo Chemical and Shinsegae Food 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 Shinsegae Food are associated (or correlated) with Kukdo Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kukdo Chemical has no effect on the direction of Shinsegae Food i.e., Shinsegae Food and Kukdo Chemical go up and down completely randomly.

Pair Corralation between Shinsegae Food and Kukdo Chemical

Assuming the 90 days trading horizon Shinsegae Food is expected to generate 1.25 times less return on investment than Kukdo Chemical. In addition to that, Shinsegae Food is 2.61 times more volatile than Kukdo Chemical Co. It trades about 0.15 of its total potential returns per unit of risk. Kukdo Chemical Co is currently generating about 0.49 per unit of volatility. If you would invest  2,645,000  in Kukdo Chemical Co on October 10, 2024 and sell it today you would earn a total of  610,000  from holding Kukdo Chemical Co or generate 23.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

Shinsegae Food  vs.  Kukdo Chemical Co

Shinsegae Food

Risk-Adjusted Performance

0 of 100

Very Weak

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

Kukdo Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shinsegae Food and Kukdo Chemical

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

The idea behind Shinsegae Food and Kukdo Chemical Co 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.