Correlation Between Korea Investment and DB Financial

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

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

Diversification Opportunities for Korea Investment and DB Financial

-0.31

Correlation Coefficient

Korea Investment  DB Financial

Very good diversification

The 3 months correlation between Korea and 016610 is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Korea Investment Holdings and DB Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DB Financial Investment and Korea Investment 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 Investment Holdings are associated (or correlated) with DB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DB Financial Investment has no effect on the direction of Korea Investment i.e., Korea Investment and DB Financial go up and down completely randomly.

Pair Corralation between Korea Investment and DB Financial

Assuming the 90 days trading horizon Korea Investment Holdings is expected to under-perform the DB Financial. But the stock apears to be less risky and, when comparing its historical volatility, Korea Investment Holdings is 1.05 times less risky than DB Financial. The stock trades about -0.1 of its potential returns per unit of risk. The DB Financial Investment is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  530,000  in DB Financial Investment on October 6, 2024 and sell it today you would lose (11,000) from holding DB Financial Investment or give up 2.08% of portfolio value over 90 days.

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

Korea Investment Holdings  vs.  DB Financial Investment

Korea Investment Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Investment Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Korea Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

DB Financial Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DB Financial Investment 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.

Pair Trading with Korea Investment and DB Financial

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

The idea behind Korea Investment Holdings and DB Financial Investment 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.