Correlation Between Korea Investment and Kosdaq Composite

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

Diversification Opportunities for Korea Investment and Kosdaq Composite

-0.59

Correlation Coefficient

Korea Investment  Kosdaq Composite

Excellent diversification

The 3 months correlation between Korea and Kosdaq is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Korea Investment Holdings and Kosdaq Composite Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kosdaq Composite Index 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 Kosdaq Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kosdaq Composite Index has no effect on the direction of Korea Investment i.e., Korea Investment and Kosdaq Composite go up and down completely randomly.

Pair Corralation between Korea Investment and Kosdaq Composite

Assuming the 90 days trading horizon Korea Investment Holdings is expected to generate 1.01 times more return on investment than Kosdaq Composite. However, Korea Investment is 1.01 times more volatile than Kosdaq Composite Index. It trades about 0.08 of its potential returns per unit of risk. Kosdaq Composite Index is currently generating about -0.05 per unit of risk. If you would invest  4,025,000  in Korea Investment Holdings on October 6, 2024 and sell it today you would earn a total of  1,255,000  from holding Korea Investment Holdings or generate 31.18% 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.  Kosdaq Composite Index

Pair Trading with Korea Investment and Kosdaq Composite

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

The idea behind Korea Investment Holdings and Kosdaq Composite Index 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.