Correlation Between KCI and Hanwha Aerospace

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

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

Diversification Opportunities for KCI and Hanwha Aerospace

-0.55

Correlation Coefficient

KCI  Hanwha Aerospace

Excellent diversification

The 3 months correlation between KCI and Hanwha is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding KCI Limited and Hanwha Aerospace Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanwha Aerospace and KCI 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 KCI Limited are associated (or correlated) with Hanwha Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanwha Aerospace has no effect on the direction of KCI i.e., KCI and Hanwha Aerospace go up and down completely randomly.

Pair Corralation between KCI and Hanwha Aerospace

Assuming the 90 days trading horizon KCI Limited is expected to under-perform the Hanwha Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, KCI Limited is 6.67 times less risky than Hanwha Aerospace. The stock trades about -0.15 of its potential returns per unit of risk. The Hanwha Aerospace Co is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  36,350,000  in Hanwha Aerospace Co on December 31, 2024 and sell it today you would earn a total of  26,650,000  from holding Hanwha Aerospace Co or generate 73.31% return on investment over 90 days.

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

KCI Limited  vs.  Hanwha Aerospace Co

KCI Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days KCI Limited 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.

Hanwha Aerospace

Risk-Adjusted Performance

Solid

Over the last 90 days Hanwha Aerospace Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Hanwha Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KCI and Hanwha Aerospace

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

The idea behind KCI Limited and Hanwha Aerospace 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.