Correlation Between Korea Real and BNK Financial

Can any of the company-specific risk be diversified away by investing in both Korea Real and BNK Financial 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 BNK Financial 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 BNK Financial Group, you can compare the effects of market volatilities on Korea Real and BNK Financial 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 BNK Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Real and BNK Financial.

Diversification Opportunities for Korea Real and BNK Financial

-0.35

Correlation Coefficient

Korea Real  BNK Financial

Very good diversification

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

Pair Corralation between Korea Real and BNK Financial

Assuming the 90 days trading horizon Korea Real Estate is expected to under-perform the BNK Financial. But the stock apears to be less risky and, when comparing its historical volatility, Korea Real Estate is 3.06 times less risky than BNK Financial. The stock trades about -0.07 of its potential returns per unit of risk. The BNK Financial Group is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  975,000  in BNK Financial Group on September 13, 2024 and sell it today you would earn a total of  120,000  from holding BNK Financial Group or generate 12.31% return on investment over 90 days.

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

Korea Real Estate  vs.  BNK Financial Group

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 somewhat strong basic indicators, Korea Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

BNK Financial Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BNK Financial Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BNK Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Real and BNK Financial

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

The idea behind Korea Real Estate and BNK Financial Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.