Correlation Between ENERGYMACHINERY KOREA and Nam Hwa

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

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

Diversification Opportunities for ENERGYMACHINERY KOREA and Nam Hwa

-0.09

Correlation Coefficient

ENERGYMACHINERY KOREA  Nam Hwa

Good diversification

The 3 months correlation between ENERGYMACHINERY and Nam is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding ENERGYMACHINERY KOREA CoLtd and Nam Hwa Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nam Hwa Construction and ENERGYMACHINERY KOREA 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 ENERGYMACHINERY KOREA CoLtd are associated (or correlated) with Nam Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nam Hwa Construction has no effect on the direction of ENERGYMACHINERY KOREA i.e., ENERGYMACHINERY KOREA and Nam Hwa go up and down completely randomly.

Pair Corralation between ENERGYMACHINERY KOREA and Nam Hwa

Assuming the 90 days trading horizon ENERGYMACHINERY KOREA CoLtd is expected to generate 1.07 times more return on investment than Nam Hwa. However, ENERGYMACHINERY KOREA is 1.07 times more volatile than Nam Hwa Construction. It trades about -0.02 of its potential returns per unit of risk. Nam Hwa Construction is currently generating about -0.06 per unit of risk. If you would invest  308,000  in ENERGYMACHINERY KOREA CoLtd on September 18, 2024 and sell it today you would lose (124,400) from holding ENERGYMACHINERY KOREA CoLtd or give up 40.39% of portfolio value over 90 days.

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

ENERGYMACHINERY KOREA CoLtd  vs.  Nam Hwa Construction

ENERGYMACHINERY KOREA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ENERGYMACHINERY KOREA CoLtd 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.

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.

Pair Trading with ENERGYMACHINERY KOREA and Nam Hwa

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

The idea behind ENERGYMACHINERY KOREA CoLtd and Nam Hwa Construction 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.