Correlation Between Naver and Kumho Petro

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

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

Diversification Opportunities for Naver and Kumho Petro

0.67

Correlation Coefficient

Naver  Kumho Petro

Poor diversification

The 3 months correlation between Naver and Kumho is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Naver and Kumho Petro Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumho Petro Chemical and Naver 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 Naver are associated (or correlated) with Kumho Petro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumho Petro Chemical has no effect on the direction of Naver i.e., Naver and Kumho Petro go up and down completely randomly.

Pair Corralation between Naver and Kumho Petro

Assuming the 90 days trading horizon Naver is expected to generate 5.2 times less return on investment than Kumho Petro. But when comparing it to its historical volatility, Naver is 1.51 times less risky than Kumho Petro. It trades about 0.04 of its potential returns per unit of risk. Kumho Petro Chemical is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  9,103,943  in Kumho Petro Chemical on December 24, 2024 and sell it today you would earn a total of  2,466,057  from holding Kumho Petro Chemical or generate 27.09% return on investment over 90 days.

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

Naver  vs.  Kumho Petro Chemical

Naver

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Naver are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Naver is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kumho Petro Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kumho Petro Chemical are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kumho Petro sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naver and Kumho Petro

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

The idea behind Naver and Kumho Petro Chemical 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.