Correlation Between Nam Hwa and Seoam Machinery

Can any of the company-specific risk be diversified away by investing in both Nam Hwa and Seoam Machinery 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 Nam Hwa and Seoam Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nam Hwa Construction and Seoam Machinery Industry, you can compare the effects of market volatilities on Nam Hwa and Seoam Machinery 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 Nam Hwa with a short position of Seoam Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nam Hwa and Seoam Machinery.

Diversification Opportunities for Nam Hwa and Seoam Machinery

0.28

Correlation Coefficient

Nam Hwa  Seoam Machinery

Modest diversification

The 3 months correlation between Nam and Seoam is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Nam Hwa Construction and Seoam Machinery Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seoam Machinery Industry and Nam Hwa 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 Nam Hwa Construction are associated (or correlated) with Seoam Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seoam Machinery Industry has no effect on the direction of Nam Hwa i.e., Nam Hwa and Seoam Machinery go up and down completely randomly.

Pair Corralation between Nam Hwa and Seoam Machinery

Assuming the 90 days trading horizon Nam Hwa Construction is expected to generate 0.83 times more return on investment than Seoam Machinery. However, Nam Hwa Construction is 1.21 times less risky than Seoam Machinery. It trades about 0.06 of its potential returns per unit of risk. Seoam Machinery Industry is currently generating about -0.01 per unit of risk. If you would invest  398,000  in Nam Hwa Construction on September 18, 2024 and sell it today you would earn a total of  35,500  from holding Nam Hwa Construction or generate 8.92% return on investment over 90 days.

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

Nam Hwa Construction  vs.  Seoam Machinery Industry

Nam Hwa Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nam Hwa Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nam Hwa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Seoam Machinery Industry

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Nam Hwa and Seoam Machinery

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

The idea behind Nam Hwa Construction and Seoam Machinery Industry 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.