Correlation Between Gyeongnam Steel and Korea Steel

Can any of the company-specific risk be diversified away by investing in both Gyeongnam Steel 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 Gyeongnam Steel and Korea Steel 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 Steel Co, you can compare the effects of market volatilities on Gyeongnam Steel 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 Gyeongnam Steel with a short position of Korea Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gyeongnam Steel and Korea Steel.

Diversification Opportunities for Gyeongnam Steel and Korea Steel

0.68

Correlation Coefficient

Gyeongnam Steel  Korea Steel

Poor diversification

The 3 months correlation between Gyeongnam and Korea is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Gyeongnam Steel Co and Korea Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Steel 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 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 Gyeongnam Steel i.e., Gyeongnam Steel and Korea Steel go up and down completely randomly.

Pair Corralation between Gyeongnam Steel and Korea Steel

Assuming the 90 days trading horizon Gyeongnam Steel Co is expected to generate 3.58 times more return on investment than Korea Steel. However, Gyeongnam Steel is 3.58 times more volatile than Korea Steel Co. It trades about 0.16 of its potential returns per unit of risk. Korea Steel Co is currently generating about 0.14 per unit of risk. If you would invest  282,247  in Gyeongnam Steel Co on November 29, 2024 and sell it today you would earn a total of  202,753  from holding Gyeongnam Steel Co or generate 71.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Gyeongnam Steel Co  vs.  Korea Steel Co

Gyeongnam Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gyeongnam Steel Co are ranked lower than 12 (%) 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 Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Steel Co are ranked lower than 10 (%) 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 Gyeongnam Steel and Korea Steel

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

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.