Correlation Between Korea Computer and KCC Engineering

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Can any of the company-specific risk be diversified away by investing in both Korea Computer and KCC 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 Korea Computer and KCC Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Korea Computer and KCC Engineering Construction, you can compare the effects of market volatilities on Korea Computer and KCC 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 Korea Computer with a short position of KCC Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Computer and KCC Engineering.

Diversification Opportunities for Korea Computer and KCC Engineering

0.35
  Correlation Coefficient

Weak diversification

The 3 months correlation between Korea and KCC is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Korea Computer and KCC Engineering Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KCC Engineering Cons and Korea Computer 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 Computer are associated (or correlated) with KCC Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KCC Engineering Cons has no effect on the direction of Korea Computer i.e., Korea Computer and KCC Engineering go up and down completely randomly.

Pair Corralation between Korea Computer and KCC Engineering

Assuming the 90 days trading horizon Korea Computer is expected to generate 2.24 times more return on investment than KCC Engineering. However, Korea Computer is 2.24 times more volatile than KCC Engineering Construction. It trades about 0.03 of its potential returns per unit of risk. KCC Engineering Construction is currently generating about -0.07 per unit of risk. If you would invest  509,944  in Korea Computer on October 6, 2024 and sell it today you would earn a total of  14,056  from holding Korea Computer or generate 2.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Korea Computer  vs.  KCC Engineering Construction

 Performance 
       Timeline  
Korea Computer 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Korea Computer are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Korea Computer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
KCC Engineering Cons 

Risk-Adjusted Performance

0 of 100

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

Korea Computer and KCC Engineering Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Korea Computer and KCC Engineering

The main advantage of trading using opposite Korea Computer and KCC Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korea Computer position performs unexpectedly, KCC 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 KCC Engineering will offset losses from the drop in KCC Engineering's long position.
The idea behind Korea Computer and KCC 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.
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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