Correlation Between Hana Materials and KPX Green

Can any of the company-specific risk be diversified away by investing in both Hana Materials and KPX Green 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 Hana Materials and KPX Green into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hana Materials and KPX Green Chemical, you can compare the effects of market volatilities on Hana Materials and KPX Green 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 Hana Materials with a short position of KPX Green. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hana Materials and KPX Green.

Diversification Opportunities for Hana Materials and KPX Green

0.85

Correlation Coefficient

Hana Materials  KPX Green

Very poor diversification

The 3 months correlation between Hana and KPX is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Hana Materials and KPX Green Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KPX Green Chemical and Hana Materials 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 Hana Materials are associated (or correlated) with KPX Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KPX Green Chemical has no effect on the direction of Hana Materials i.e., Hana Materials and KPX Green go up and down completely randomly.

Pair Corralation between Hana Materials and KPX Green

Assuming the 90 days trading horizon Hana Materials is expected to under-perform the KPX Green. But the stock apears to be less risky and, when comparing its historical volatility, Hana Materials is 2.13 times less risky than KPX Green. The stock trades about -0.06 of its potential returns per unit of risk. The KPX Green Chemical is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  487,000  in KPX Green Chemical on September 21, 2024 and sell it today you would earn a total of  183,000  from holding KPX Green Chemical or generate 37.58% return on investment over 90 days.

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

Hana Materials  vs.  KPX Green Chemical

Hana Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

KPX Green Chemical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KPX Green Chemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KPX Green may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hana Materials and KPX Green

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

The idea behind Hana Materials and KPX Green Chemical 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 Anywhere module to track or share privately all of your investments from the convenience of any device.