Correlation Between Cheryong Industrial and Woorim Machinery

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

Diversification Opportunities for Cheryong Industrial and Woorim Machinery

0.76

Correlation Coefficient

Cheryong Industrial  Woorim Machinery

Poor diversification

The 3 months correlation between Cheryong and Woorim is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Cheryong Industrial CoLtd and Woorim Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woorim Machinery 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 Woorim Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woorim Machinery has no effect on the direction of Cheryong Industrial i.e., Cheryong Industrial and Woorim Machinery go up and down completely randomly.

Pair Corralation between Cheryong Industrial and Woorim Machinery

Assuming the 90 days trading horizon Cheryong Industrial CoLtd is expected to generate 1.54 times more return on investment than Woorim Machinery. However, Cheryong Industrial is 1.54 times more volatile than Woorim Machinery Co. It trades about 0.1 of its potential returns per unit of risk. Woorim Machinery Co is currently generating about 0.12 per unit of risk. If you would invest  488,369  in Cheryong Industrial CoLtd on December 4, 2024 and sell it today you would earn a total of  127,631  from holding Cheryong Industrial CoLtd or generate 26.13% return on investment over 90 days.

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

Cheryong Industrial CoLtd  vs.  Woorim Machinery Co

Cheryong Industrial CoLtd

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheryong Industrial CoLtd are ranked lower than 8 (%) 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.

Woorim Machinery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Woorim Machinery Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Woorim Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheryong Industrial and Woorim Machinery

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

The idea behind Cheryong Industrial CoLtd and Woorim Machinery Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.