Correlation Between PJ Metal and KEPCO Engineering

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

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

Diversification Opportunities for PJ Metal and KEPCO Engineering

0.49

Correlation Coefficient

PJ Metal  KEPCO Engineering

Very weak diversification

The 3 months correlation between 128660 and KEPCO is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding PJ Metal Co and KEPCO Engineering Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KEPCO Engineering and PJ Metal 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 PJ Metal Co are associated (or correlated) with KEPCO Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KEPCO Engineering has no effect on the direction of PJ Metal i.e., PJ Metal and KEPCO Engineering go up and down completely randomly.

Pair Corralation between PJ Metal and KEPCO Engineering

Assuming the 90 days trading horizon PJ Metal Co is expected to under-perform the KEPCO Engineering. But the stock apears to be less risky and, when comparing its historical volatility, PJ Metal Co is 1.49 times less risky than KEPCO Engineering. The stock trades about -0.02 of its potential returns per unit of risk. The KEPCO Engineering Construction is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  7,060,000  in KEPCO Engineering Construction on October 24, 2024 and sell it today you would lose (360,000) from holding KEPCO Engineering Construction or give up 5.1% of portfolio value over 90 days.

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

PJ Metal Co  vs.  KEPCO Engineering Construction

PJ Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

KEPCO Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with PJ Metal and KEPCO Engineering

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

The idea behind PJ Metal Co and KEPCO Engineering 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.