Correlation Between PI Advanced and Iljin Materials

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

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

Diversification Opportunities for PI Advanced and Iljin Materials

0.53

Correlation Coefficient

PI Advanced  Iljin Materials

Very weak diversification

The 3 months correlation between 178920 and Iljin is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding PI Advanced Materials and Iljin Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iljin Materials and PI 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 PI Advanced Materials are associated (or correlated) with Iljin Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iljin Materials has no effect on the direction of PI Advanced i.e., PI Advanced and Iljin Materials go up and down completely randomly.

Pair Corralation between PI Advanced and Iljin Materials

Assuming the 90 days trading horizon PI Advanced is expected to generate 2.77 times less return on investment than Iljin Materials. But when comparing it to its historical volatility, PI Advanced Materials is 1.04 times less risky than Iljin Materials. It trades about 0.05 of its potential returns per unit of risk. Iljin Materials Co is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,275,000  in Iljin Materials Co on December 1, 2024 and sell it today you would earn a total of  450,000  from holding Iljin Materials Co or generate 19.78% return on investment over 90 days.

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

PI Advanced Materials  vs.  Iljin Materials Co

PI Advanced Materials

Risk-Adjusted Performance

Modest

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

Iljin Materials

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Iljin Materials Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Iljin Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PI Advanced and Iljin Materials

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

The idea behind PI Advanced Materials and Iljin Materials 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.