Correlation Between Namhwa Industrial and Cheryong Electric

Can any of the company-specific risk be diversified away by investing in both Namhwa Industrial and Cheryong Electric 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 Cheryong Electric 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 Cheryong Electric CoLtd, you can compare the effects of market volatilities on Namhwa Industrial and Cheryong Electric 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 Cheryong Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Namhwa Industrial and Cheryong Electric.

Diversification Opportunities for Namhwa Industrial and Cheryong Electric

0.61

Correlation Coefficient

Namhwa Industrial  Cheryong Electric

Poor diversification

The 3 months correlation between Namhwa and Cheryong is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Namhwa Industrial Co and Cheryong Electric CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheryong Electric CoLtd 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 Cheryong Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheryong Electric CoLtd has no effect on the direction of Namhwa Industrial i.e., Namhwa Industrial and Cheryong Electric go up and down completely randomly.

Pair Corralation between Namhwa Industrial and Cheryong Electric

Assuming the 90 days trading horizon Namhwa Industrial Co is expected to generate 0.63 times more return on investment than Cheryong Electric. However, Namhwa Industrial Co is 1.58 times less risky than Cheryong Electric. It trades about -0.02 of its potential returns per unit of risk. Cheryong Electric CoLtd is currently generating about -0.11 per unit of risk. If you would invest  517,000  in Namhwa Industrial Co on December 26, 2024 and sell it today you would lose (17,000) from holding Namhwa Industrial Co or give up 3.29% of portfolio value over 90 days.

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

Namhwa Industrial Co  vs.  Cheryong Electric CoLtd

Namhwa Industrial

Risk-Adjusted Performance

Very Weak

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

Cheryong Electric CoLtd

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheryong Electric CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Namhwa Industrial and Cheryong Electric

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

The idea behind Namhwa Industrial Co and Cheryong Electric CoLtd 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.