Correlation Between Namhwa Industrial and Korean Air

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

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

Diversification Opportunities for Namhwa Industrial and Korean Air

0.65

Correlation Coefficient

Namhwa Industrial  Korean Air

Poor diversification

The 3 months correlation between Namhwa and Korean is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Namhwa Industrial Co and Korean Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Air Lines and Namhwa Industrial 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 Namhwa Industrial Co are associated (or correlated) with Korean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Air Lines has no effect on the direction of Namhwa Industrial i.e., Namhwa Industrial and Korean Air go up and down completely randomly.

Pair Corralation between Namhwa Industrial and Korean Air

Assuming the 90 days trading horizon Namhwa Industrial is expected to generate 4.04 times less return on investment than Korean Air. But when comparing it to its historical volatility, Namhwa Industrial Co is 1.12 times less risky than Korean Air. It trades about 0.02 of its potential returns per unit of risk. Korean Air Lines is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,030,000  in Korean Air Lines on October 12, 2024 and sell it today you would earn a total of  305,000  from holding Korean Air Lines or generate 15.02% return on investment over 90 days.

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

Namhwa Industrial Co  vs.  Korean Air Lines

Namhwa Industrial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Namhwa Industrial Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Namhwa Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Korean Air Lines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Air may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Namhwa Industrial and Korean Air

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

The idea behind Namhwa Industrial Co and Korean Air Lines 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.