Correlation Between SFA Engineering and Posco ICT

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

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

Diversification Opportunities for SFA Engineering and Posco ICT

0.64

Correlation Coefficient

SFA Engineering  Posco ICT

Poor diversification

The 3 months correlation between SFA and Posco is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SFA Engineering and Posco ICT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Posco ICT and SFA 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 SFA Engineering are associated (or correlated) with Posco ICT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Posco ICT has no effect on the direction of SFA Engineering i.e., SFA Engineering and Posco ICT go up and down completely randomly.

Pair Corralation between SFA Engineering and Posco ICT

Assuming the 90 days trading horizon SFA Engineering is expected to generate 4.16 times less return on investment than Posco ICT. But when comparing it to its historical volatility, SFA Engineering is 3.26 times less risky than Posco ICT. It trades about 0.09 of its potential returns per unit of risk. Posco ICT is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,899,017  in Posco ICT on December 30, 2024 and sell it today you would earn a total of  630,983  from holding Posco ICT or generate 33.23% return on investment over 90 days.

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

SFA Engineering  vs.  Posco ICT

SFA Engineering

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SFA Engineering are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SFA Engineering may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Posco ICT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Posco ICT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Posco ICT sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SFA Engineering and Posco ICT

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

The idea behind SFA Engineering and Posco ICT 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.