Correlation Between Korea Investment and Korea Computer

Can any of the company-specific risk be diversified away by investing in both Korea Investment and Korea Computer 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 Korea Computer 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 Korea Computer, you can compare the effects of market volatilities on Korea Investment and Korea Computer 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 Korea Computer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Investment and Korea Computer.

Diversification Opportunities for Korea Investment and Korea Computer

-0.41

Correlation Coefficient

Korea Investment  Korea Computer

Very good diversification

The 3 months correlation between Korea and Korea is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Korea Investment Holdings and Korea Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Computer 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 Korea Computer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Computer has no effect on the direction of Korea Investment i.e., Korea Investment and Korea Computer go up and down completely randomly.

Pair Corralation between Korea Investment and Korea Computer

Assuming the 90 days trading horizon Korea Investment Holdings is expected to generate 0.54 times more return on investment than Korea Computer. However, Korea Investment Holdings is 1.86 times less risky than Korea Computer. It trades about 0.12 of its potential returns per unit of risk. Korea Computer is currently generating about -0.04 per unit of risk. If you would invest  4,905,000  in Korea Investment Holdings on September 12, 2024 and sell it today you would earn a total of  475,000  from holding Korea Investment Holdings or generate 9.68% return on investment over 90 days.

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

Korea Investment Holdings  vs.  Korea Computer

Korea Investment Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Investment Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Korea Computer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Computer has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Korea Investment and Korea Computer

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

The idea behind Korea Investment Holdings and Korea Computer 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.