Correlation Between Woorim Machinery and NOVATECH

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

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

Diversification Opportunities for Woorim Machinery and NOVATECH

-0.2

Correlation Coefficient

Woorim Machinery  NOVATECH

Good diversification

The 3 months correlation between Woorim and NOVATECH is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Woorim Machinery Co and NOVATECH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVATECH and Woorim Machinery 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 Woorim Machinery Co are associated (or correlated) with NOVATECH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOVATECH has no effect on the direction of Woorim Machinery i.e., Woorim Machinery and NOVATECH go up and down completely randomly.

Pair Corralation between Woorim Machinery and NOVATECH

Assuming the 90 days trading horizon Woorim Machinery Co is expected to generate 1.05 times more return on investment than NOVATECH. However, Woorim Machinery is 1.05 times more volatile than NOVATECH Co. It trades about 0.0 of its potential returns per unit of risk. NOVATECH Co is currently generating about -0.01 per unit of risk. If you would invest  680,514  in Woorim Machinery Co on October 7, 2024 and sell it today you would lose (138,514) from holding Woorim Machinery Co or give up 20.35% of portfolio value over 90 days.

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

Woorim Machinery Co  vs.  NOVATECH Co

Woorim Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

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

NOVATECH

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NOVATECH Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NOVATECH sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Woorim Machinery and NOVATECH

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

The idea behind Woorim Machinery Co and NOVATECH Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.