Correlation Between Cheryong Electric and Korea Steel

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

By analyzing existing cross correlation between Cheryong Electric CoLtd and Korea Steel Co, you can compare the effects of market volatilities on Cheryong Electric and Korea Steel 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 Cheryong Electric with a short position of Korea Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheryong Electric and Korea Steel.

Diversification Opportunities for Cheryong Electric and Korea Steel

0.4

Correlation Coefficient

Cheryong Electric  Korea Steel

Very weak diversification

The 3 months correlation between Cheryong and Korea is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Cheryong Electric CoLtd and Korea Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Steel and Cheryong Electric 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 Cheryong Electric CoLtd are associated (or correlated) with Korea Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Steel has no effect on the direction of Cheryong Electric i.e., Cheryong Electric and Korea Steel go up and down completely randomly.

Pair Corralation between Cheryong Electric and Korea Steel

Assuming the 90 days trading horizon Cheryong Electric is expected to generate 1.02 times less return on investment than Korea Steel. In addition to that, Cheryong Electric is 1.31 times more volatile than Korea Steel Co. It trades about 0.48 of its total potential returns per unit of risk. Korea Steel Co is currently generating about 0.64 per unit of volatility. If you would invest  122,700  in Korea Steel Co on October 9, 2024 and sell it today you would earn a total of  45,600  from holding Korea Steel Co or generate 37.16% return on investment over 90 days.

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

Cheryong Electric CoLtd  vs.  Korea Steel Co

Cheryong Electric CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cheryong Electric CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Korea Steel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Steel Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheryong Electric and Korea Steel

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

The idea behind Cheryong Electric CoLtd and Korea Steel 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.