Correlation Between Hanjoo Light and Sungmoon Electronics

Can any of the company-specific risk be diversified away by investing in both Hanjoo Light and Sungmoon Electronics 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 Hanjoo Light and Sungmoon Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hanjoo Light Metal and Sungmoon Electronics Co, you can compare the effects of market volatilities on Hanjoo Light and Sungmoon Electronics 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 Hanjoo Light with a short position of Sungmoon Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanjoo Light and Sungmoon Electronics.

Diversification Opportunities for Hanjoo Light and Sungmoon Electronics

0.6

Correlation Coefficient

Hanjoo Light  Sungmoon Electronics

Poor diversification

The 3 months correlation between Hanjoo and Sungmoon is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Hanjoo Light Metal and Sungmoon Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sungmoon Electronics and Hanjoo Light 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 Hanjoo Light Metal are associated (or correlated) with Sungmoon Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sungmoon Electronics has no effect on the direction of Hanjoo Light i.e., Hanjoo Light and Sungmoon Electronics go up and down completely randomly.

Pair Corralation between Hanjoo Light and Sungmoon Electronics

Assuming the 90 days trading horizon Hanjoo Light is expected to generate 2.06 times less return on investment than Sungmoon Electronics. But when comparing it to its historical volatility, Hanjoo Light Metal is 1.93 times less risky than Sungmoon Electronics. It trades about 0.11 of its potential returns per unit of risk. Sungmoon Electronics Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  467,000  in Sungmoon Electronics Co on October 25, 2024 and sell it today you would earn a total of  33,000  from holding Sungmoon Electronics Co or generate 7.07% return on investment over 90 days.

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

Hanjoo Light Metal  vs.  Sungmoon Electronics Co

Hanjoo Light Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hanjoo Light Metal 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.

Sungmoon Electronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sungmoon Electronics Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sungmoon Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hanjoo Light and Sungmoon Electronics

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

The idea behind Hanjoo Light Metal and Sungmoon Electronics 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.