Correlation Between Hanjoo Light and Kbi Metal

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

Diversification Opportunities for Hanjoo Light and Kbi Metal

0.34

Correlation Coefficient

Hanjoo Light  Kbi Metal

Weak diversification

The 3 months correlation between Hanjoo and Kbi is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Hanjoo Light Metal and Kbi Metal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kbi Metal 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 Kbi Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kbi Metal has no effect on the direction of Hanjoo Light i.e., Hanjoo Light and Kbi Metal go up and down completely randomly.

Pair Corralation between Hanjoo Light and Kbi Metal

Assuming the 90 days trading horizon Hanjoo Light Metal is expected to under-perform the Kbi Metal. But the stock apears to be less risky and, when comparing its historical volatility, Hanjoo Light Metal is 2.02 times less risky than Kbi Metal. The stock trades about -0.09 of its potential returns per unit of risk. The Kbi Metal Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  197,000  in Kbi Metal Co on November 29, 2024 and sell it today you would earn a total of  25,000  from holding Kbi Metal Co or generate 12.69% return on investment over 90 days.

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

Hanjoo Light Metal  vs.  Kbi Metal Co

Hanjoo Light Metal

Risk-Adjusted Performance

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 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.

Kbi Metal

Risk-Adjusted Performance

Modest

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

Pair Trading with Hanjoo Light and Kbi Metal

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

The idea behind Hanjoo Light Metal and Kbi Metal 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.