Correlation Between Grand Korea and Hankuk Steel

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

By analyzing existing cross correlation between Grand Korea Leisure and Hankuk Steel Wire, you can compare the effects of market volatilities on Grand Korea and Hankuk Steel 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 Grand Korea with a short position of Hankuk Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grand Korea and Hankuk Steel.

Diversification Opportunities for Grand Korea and Hankuk Steel

0.48

Correlation Coefficient

Grand Korea  Hankuk Steel

Very weak diversification

The 3 months correlation between Grand and Hankuk is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Grand Korea Leisure and Hankuk Steel Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hankuk Steel Wire and Grand 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 Grand Korea Leisure are associated (or correlated) with Hankuk Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hankuk Steel Wire has no effect on the direction of Grand Korea i.e., Grand Korea and Hankuk Steel go up and down completely randomly.

Pair Corralation between Grand Korea and Hankuk Steel

Assuming the 90 days trading horizon Grand Korea is expected to generate 2.03 times less return on investment than Hankuk Steel. But when comparing it to its historical volatility, Grand Korea Leisure is 2.83 times less risky than Hankuk Steel. It trades about 0.27 of its potential returns per unit of risk. Hankuk Steel Wire is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  421,000  in Hankuk Steel Wire on October 22, 2024 and sell it today you would earn a total of  49,000  from holding Hankuk Steel Wire or generate 11.64% return on investment over 90 days.

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

Grand Korea Leisure  vs.  Hankuk Steel Wire

Grand Korea Leisure

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grand Korea Leisure are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Grand Korea may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hankuk Steel Wire

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hankuk Steel Wire are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hankuk Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Grand Korea and Hankuk Steel

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

The idea behind Grand Korea Leisure and Hankuk Steel Wire 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.