Correlation Between Hanjoo Light and Choil Aluminum

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

Diversification Opportunities for Hanjoo Light and Choil Aluminum

0.85

Correlation Coefficient

Hanjoo Light  Choil Aluminum

Very poor diversification

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

Pair Corralation between Hanjoo Light and Choil Aluminum

Assuming the 90 days trading horizon Hanjoo Light Metal is expected to under-perform the Choil Aluminum. But the stock apears to be less risky and, when comparing its historical volatility, Hanjoo Light Metal is 1.16 times less risky than Choil Aluminum. The stock trades about -0.14 of its potential returns per unit of risk. The Choil Aluminum is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  165,900  in Choil Aluminum on October 27, 2024 and sell it today you would lose (16,100) from holding Choil Aluminum or give up 9.7% of portfolio value over 90 days.

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

Hanjoo Light Metal  vs.  Choil Aluminum

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.

Choil Aluminum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Choil Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Hanjoo Light and Choil Aluminum

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

The idea behind Hanjoo Light Metal and Choil Aluminum 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.