Correlation Between Korea Real and Busan Industrial

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

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

Diversification Opportunities for Korea Real and Busan Industrial

-0.47

Correlation Coefficient

Korea Real  Busan Industrial

Very good diversification

The 3 months correlation between Korea and Busan is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Korea Real Estate and Busan Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Busan Industrial and Korea Real 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 Korea Real Estate are associated (or correlated) with Busan Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Busan Industrial has no effect on the direction of Korea Real i.e., Korea Real and Busan Industrial go up and down completely randomly.

Pair Corralation between Korea Real and Busan Industrial

Assuming the 90 days trading horizon Korea Real is expected to generate 12.69 times less return on investment than Busan Industrial. But when comparing it to its historical volatility, Korea Real Estate is 4.64 times less risky than Busan Industrial. It trades about 0.01 of its potential returns per unit of risk. Busan Industrial Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,620,000  in Busan Industrial Co on September 3, 2024 and sell it today you would earn a total of  520,000  from holding Busan Industrial Co or generate 9.25% return on investment over 90 days.

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

Korea Real Estate  vs.  Busan Industrial Co

Korea Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Busan Industrial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Busan Industrial Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Busan Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Real and Busan Industrial

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

The idea behind Korea Real Estate and Busan Industrial 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.