Correlation Between Union Materials and Korea Gas

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

By analyzing existing cross correlation between Union Materials Corp and Korea Gas, you can compare the effects of market volatilities on Union Materials and Korea Gas 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 Union Materials with a short position of Korea Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Materials and Korea Gas.

Diversification Opportunities for Union Materials and Korea Gas

-0.36

Correlation Coefficient

Union Materials  Korea Gas

Very good diversification

The 3 months correlation between Union and Korea is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Union Materials Corp and Korea Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Gas and Union Materials 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 Union Materials Corp are associated (or correlated) with Korea Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Gas has no effect on the direction of Union Materials i.e., Union Materials and Korea Gas go up and down completely randomly.

Pair Corralation between Union Materials and Korea Gas

Assuming the 90 days trading horizon Union Materials Corp is expected to under-perform the Korea Gas. But the stock apears to be less risky and, when comparing its historical volatility, Union Materials Corp is 1.34 times less risky than Korea Gas. The stock trades about -0.04 of its potential returns per unit of risk. The Korea Gas is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,470,000  in Korea Gas on December 30, 2024 and sell it today you would earn a total of  55,000  from holding Korea Gas or generate 1.59% return on investment over 90 days.

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

Union Materials Corp  vs.  Korea Gas

Union Materials Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Union Materials Corp 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.

Korea Gas

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Gas are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Korea Gas is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Union Materials and Korea Gas

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

The idea behind Union Materials Corp and Korea Gas 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.