Correlation Between Korea Information and BGF Retail

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

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

Diversification Opportunities for Korea Information and BGF Retail

0.49

Correlation Coefficient

Korea Information  BGF Retail

Very weak diversification

The 3 months correlation between Korea and BGF is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Korea Information Engineering and BGF Retail Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BGF Retail and Korea Information 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 Korea Information Engineering are associated (or correlated) with BGF Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BGF Retail has no effect on the direction of Korea Information i.e., Korea Information and BGF Retail go up and down completely randomly.

Pair Corralation between Korea Information and BGF Retail

Assuming the 90 days trading horizon Korea Information Engineering is expected to generate 1.39 times more return on investment than BGF Retail. However, Korea Information is 1.39 times more volatile than BGF Retail Co. It trades about -0.02 of its potential returns per unit of risk. BGF Retail Co is currently generating about -0.06 per unit of risk. If you would invest  387,000  in Korea Information Engineering on October 5, 2024 and sell it today you would lose (136,000) from holding Korea Information Engineering or give up 35.14% of portfolio value over 90 days.

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

Korea Information Engineering  vs.  BGF Retail Co

Korea Information

Risk-Adjusted Performance

0 of 100

Very Weak

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

BGF Retail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BGF Retail Co 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.

Pair Trading with Korea Information and BGF Retail

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

The idea behind Korea Information Engineering and BGF Retail 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.