Correlation Between Korea Ratings and Aurora World

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

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

Diversification Opportunities for Korea Ratings and Aurora World

0.88

Correlation Coefficient

Korea Ratings  Aurora World

Very poor diversification

The 3 months correlation between Korea and Aurora is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Korea Ratings Co and Aurora World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora World and Korea Ratings 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 Ratings Co are associated (or correlated) with Aurora World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora World has no effect on the direction of Korea Ratings i.e., Korea Ratings and Aurora World go up and down completely randomly.

Pair Corralation between Korea Ratings and Aurora World

Assuming the 90 days trading horizon Korea Ratings Co is expected to under-perform the Aurora World. But the stock apears to be less risky and, when comparing its historical volatility, Korea Ratings Co is 2.56 times less risky than Aurora World. The stock trades about -0.06 of its potential returns per unit of risk. The Aurora World is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  599,777  in Aurora World on October 6, 2024 and sell it today you would lose (2,777) from holding Aurora World or give up 0.46% of portfolio value over 90 days.

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

Korea Ratings Co  vs.  Aurora World

Korea Ratings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Ratings Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Korea Ratings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aurora World

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora World are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aurora World may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Korea Ratings and Aurora World

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

The idea behind Korea Ratings Co and Aurora World 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.