Correlation Between EV Advanced and Woori Technology

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

By analyzing existing cross correlation between EV Advanced Material and Woori Technology, you can compare the effects of market volatilities on EV Advanced and Woori Technology 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 EV Advanced with a short position of Woori Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of EV Advanced and Woori Technology.

Diversification Opportunities for EV Advanced and Woori Technology

0.83

Correlation Coefficient

EV Advanced  Woori Technology

Very poor diversification

The 3 months correlation between 131400 and Woori is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding EV Advanced Material and Woori Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woori Technology and EV Advanced 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 EV Advanced Material are associated (or correlated) with Woori Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woori Technology has no effect on the direction of EV Advanced i.e., EV Advanced and Woori Technology go up and down completely randomly.

Pair Corralation between EV Advanced and Woori Technology

Assuming the 90 days trading horizon EV Advanced is expected to generate 9.87 times less return on investment than Woori Technology. But when comparing it to its historical volatility, EV Advanced Material is 1.33 times less risky than Woori Technology. It trades about 0.07 of its potential returns per unit of risk. Woori Technology is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest  172,200  in Woori Technology on October 25, 2024 and sell it today you would earn a total of  46,300  from holding Woori Technology or generate 26.89% return on investment over 90 days.

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

EV Advanced Material  vs.  Woori Technology

EV Advanced Material

Risk-Adjusted Performance

0 of 100

Very Weak

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

Woori Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with EV Advanced and Woori Technology

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

The idea behind EV Advanced Material and Woori Technology 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.