Correlation Between Nature and Hankook Steel

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

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

Diversification Opportunities for Nature and Hankook Steel

0.28

Correlation Coefficient

Nature  Hankook Steel

Modest diversification

The 3 months correlation between Nature and Hankook is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Nature and Environment and Hankook Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hankook Steel and Nature 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 Nature and Environment are associated (or correlated) with Hankook Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hankook Steel has no effect on the direction of Nature i.e., Nature and Hankook Steel go up and down completely randomly.

Pair Corralation between Nature and Hankook Steel

Assuming the 90 days trading horizon Nature is expected to generate 3.38 times less return on investment than Hankook Steel. But when comparing it to its historical volatility, Nature and Environment is 2.08 times less risky than Hankook Steel. It trades about 0.04 of its potential returns per unit of risk. Hankook Steel Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  186,400  in Hankook Steel Co on September 21, 2024 and sell it today you would earn a total of  12,500  from holding Hankook Steel Co or generate 6.71% return on investment over 90 days.

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

Nature and Environment  vs.  Hankook Steel Co

Nature and Environment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nature and Environment 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.

Hankook Steel

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hankook Steel Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hankook Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nature and Hankook Steel

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

The idea behind Nature and Environment and Hankook 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.