Correlation Between Next Entertainment and Namhwa Industrial

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

By analyzing existing cross correlation between Next Entertainment World and Namhwa Industrial Co, you can compare the effects of market volatilities on Next Entertainment and Namhwa Industrial 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 Next Entertainment with a short position of Namhwa Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Next Entertainment and Namhwa Industrial.

Diversification Opportunities for Next Entertainment and Namhwa Industrial

0.24

Correlation Coefficient

Next Entertainment  Namhwa Industrial

Modest diversification

The 3 months correlation between Next and Namhwa is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Next Entertainment World and Namhwa Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Namhwa Industrial and Next Entertainment 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 Next Entertainment World are associated (or correlated) with Namhwa Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Namhwa Industrial has no effect on the direction of Next Entertainment i.e., Next Entertainment and Namhwa Industrial go up and down completely randomly.

Pair Corralation between Next Entertainment and Namhwa Industrial

Assuming the 90 days trading horizon Next Entertainment World is expected to under-perform the Namhwa Industrial. In addition to that, Next Entertainment is 1.53 times more volatile than Namhwa Industrial Co. It trades about -0.02 of its total potential returns per unit of risk. Namhwa Industrial Co is currently generating about -0.03 per unit of volatility. If you would invest  519,888  in Namhwa Industrial Co on December 24, 2024 and sell it today you would lose (21,888) from holding Namhwa Industrial Co or give up 4.21% of portfolio value over 90 days.

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

Next Entertainment World  vs.  Namhwa Industrial Co

Next Entertainment World

Risk-Adjusted Performance

Very Weak

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

Namhwa Industrial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Next Entertainment and Namhwa Industrial

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

The idea behind Next Entertainment World and Namhwa Industrial 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.