Correlation Between Cloud Air and Korea Steel

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

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

Diversification Opportunities for Cloud Air and Korea Steel

0.64

Correlation Coefficient

Cloud Air  Korea Steel

Poor diversification

The 3 months correlation between Cloud and Korea is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cloud Air 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 Cloud Air 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 Cloud Air 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 Cloud Air i.e., Cloud Air and Korea Steel go up and down completely randomly.

Pair Corralation between Cloud Air and Korea Steel

Assuming the 90 days trading horizon Cloud Air is expected to generate 4.24 times less return on investment than Korea Steel. But when comparing it to its historical volatility, Cloud Air CoLtd is 1.1 times less risky than Korea Steel. It trades about 0.07 of its potential returns per unit of risk. Korea Steel Co is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  142,300  in Korea Steel Co on September 29, 2024 and sell it today you would earn a total of  27,200  from holding Korea Steel Co or generate 19.11% return on investment over 90 days.

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

Cloud Air CoLtd  vs.  Korea Steel Co

Cloud Air CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cloud Air CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Cloud Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Korea Steel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Steel Co are ranked lower than 6 (%) 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 Cloud Air and Korea Steel

The main advantage of trading using opposite Cloud Air and Korea Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cloud Air 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 Cloud Air 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.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.