Correlation Between Gyeongnam Steel and Korea Petro

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

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

Diversification Opportunities for Gyeongnam Steel and Korea Petro

-0.59

Correlation Coefficient

Gyeongnam Steel  Korea Petro

Excellent diversification

The 3 months correlation between Gyeongnam and Korea is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Gyeongnam Steel Co and Korea Petro Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Petro Chemical and Gyeongnam Steel 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 Gyeongnam Steel Co are associated (or correlated) with Korea Petro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Petro Chemical has no effect on the direction of Gyeongnam Steel i.e., Gyeongnam Steel and Korea Petro go up and down completely randomly.

Pair Corralation between Gyeongnam Steel and Korea Petro

Assuming the 90 days trading horizon Gyeongnam Steel Co is expected to generate 2.19 times more return on investment than Korea Petro. However, Gyeongnam Steel is 2.19 times more volatile than Korea Petro Chemical. It trades about 0.25 of its potential returns per unit of risk. Korea Petro Chemical is currently generating about -0.12 per unit of risk. If you would invest  307,500  in Gyeongnam Steel Co on September 22, 2024 and sell it today you would earn a total of  164,500  from holding Gyeongnam Steel Co or generate 53.5% return on investment over 90 days.

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

Gyeongnam Steel Co  vs.  Korea Petro Chemical

Gyeongnam Steel

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gyeongnam Steel Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gyeongnam Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Korea Petro Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Petro Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Gyeongnam Steel and Korea Petro

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

The idea behind Gyeongnam Steel Co and Korea 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.