Correlation Between Cheryong Industrial and Hannong Chemicals

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

By analyzing existing cross correlation between Cheryong Industrial CoLtd and Hannong Chemicals, you can compare the effects of market volatilities on Cheryong Industrial and Hannong Chemicals 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 Cheryong Industrial with a short position of Hannong Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheryong Industrial and Hannong Chemicals.

Diversification Opportunities for Cheryong Industrial and Hannong Chemicals

0.38

Correlation Coefficient

Cheryong Industrial  Hannong Chemicals

Weak diversification

The 3 months correlation between Cheryong and Hannong is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Cheryong Industrial CoLtd and Hannong Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hannong Chemicals and Cheryong 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 Cheryong Industrial CoLtd are associated (or correlated) with Hannong Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hannong Chemicals has no effect on the direction of Cheryong Industrial i.e., Cheryong Industrial and Hannong Chemicals go up and down completely randomly.

Pair Corralation between Cheryong Industrial and Hannong Chemicals

Assuming the 90 days trading horizon Cheryong Industrial CoLtd is expected to generate 1.51 times more return on investment than Hannong Chemicals. However, Cheryong Industrial is 1.51 times more volatile than Hannong Chemicals. It trades about 0.08 of its potential returns per unit of risk. Hannong Chemicals is currently generating about -0.09 per unit of risk. If you would invest  608,049  in Cheryong Industrial CoLtd on October 22, 2024 and sell it today you would earn a total of  122,951  from holding Cheryong Industrial CoLtd or generate 20.22% return on investment over 90 days.

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

Cheryong Industrial CoLtd  vs.  Hannong Chemicals

Cheryong Industrial CoLtd

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cheryong Industrial CoLtd are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cheryong Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Hannong Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hannong Chemicals 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Cheryong Industrial and Hannong Chemicals

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

The idea behind Cheryong Industrial CoLtd and Hannong Chemicals 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.