Correlation Between Gyeongnam Steel and Kbi Metal

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

Diversification Opportunities for Gyeongnam Steel and Kbi Metal

0.29

Correlation Coefficient

Gyeongnam Steel  Kbi Metal

Modest diversification

The 3 months correlation between Gyeongnam and Kbi is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Gyeongnam Steel Co and Kbi Metal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kbi Metal 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 Kbi Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kbi Metal has no effect on the direction of Gyeongnam Steel i.e., Gyeongnam Steel and Kbi Metal go up and down completely randomly.

Pair Corralation between Gyeongnam Steel and Kbi Metal

Assuming the 90 days trading horizon Gyeongnam Steel Co is expected to generate 1.89 times more return on investment than Kbi Metal. However, Gyeongnam Steel is 1.89 times more volatile than Kbi Metal Co. It trades about 0.16 of its potential returns per unit of risk. Kbi Metal Co is currently generating about 0.07 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Gyeongnam Steel Co  vs.  Kbi Metal 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.

Kbi Metal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kbi Metal Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kbi Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gyeongnam Steel and Kbi Metal

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

The idea behind Gyeongnam Steel Co and Kbi Metal 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 Stocks Directory module to find actively traded stocks across global markets.