Correlation Between KEPCO Engineering and Hyundai Engineering

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

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

Diversification Opportunities for KEPCO Engineering and Hyundai Engineering

0.71

Correlation Coefficient

KEPCO Engineering  Hyundai Engineering

Poor diversification

The 3 months correlation between KEPCO and Hyundai is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding KEPCO Engineering Construction and Hyundai Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Engineering and KEPCO Engineering 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 KEPCO Engineering Construction are associated (or correlated) with Hyundai Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Engineering has no effect on the direction of KEPCO Engineering i.e., KEPCO Engineering and Hyundai Engineering go up and down completely randomly.

Pair Corralation between KEPCO Engineering and Hyundai Engineering

Assuming the 90 days trading horizon KEPCO Engineering is expected to generate 13.89 times less return on investment than Hyundai Engineering. In addition to that, KEPCO Engineering is 1.14 times more volatile than Hyundai Engineering Construction. It trades about 0.01 of its total potential returns per unit of risk. Hyundai Engineering Construction is currently generating about 0.17 per unit of volatility. If you would invest  2,745,000  in Hyundai Engineering Construction on November 29, 2024 and sell it today you would earn a total of  805,000  from holding Hyundai Engineering Construction or generate 29.33% return on investment over 90 days.

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

KEPCO Engineering Construction  vs.  Hyundai Engineering Constructi

KEPCO Engineering

Risk-Adjusted Performance

Very Weak

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

Hyundai Engineering

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hyundai Engineering Construction are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hyundai Engineering sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KEPCO Engineering and Hyundai Engineering

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

The idea behind KEPCO Engineering Construction and Hyundai Engineering Construction 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.