Correlation Between Hanjoo Light and Aurora World

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

Diversification Opportunities for Hanjoo Light and Aurora World

-0.63

Correlation Coefficient

Hanjoo Light  Aurora World

Excellent diversification

The 3 months correlation between Hanjoo and Aurora is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Hanjoo Light Metal and Aurora World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora World 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 Aurora World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora World has no effect on the direction of Hanjoo Light i.e., Hanjoo Light and Aurora World go up and down completely randomly.

Pair Corralation between Hanjoo Light and Aurora World

Assuming the 90 days trading horizon Hanjoo Light is expected to generate 96.5 times less return on investment than Aurora World. In addition to that, Hanjoo Light is 1.2 times more volatile than Aurora World. It trades about 0.0 of its total potential returns per unit of risk. Aurora World is currently generating about 0.18 per unit of volatility. If you would invest  591,000  in Aurora World on December 25, 2024 and sell it today you would earn a total of  101,000  from holding Aurora World or generate 17.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.25%
Values	Daily Returns

Hanjoo Light Metal  vs.  Aurora World

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 somewhat strong basic indicators, Hanjoo Light is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aurora World

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora World are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aurora World sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hanjoo Light and Aurora World

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

The idea behind Hanjoo Light Metal and Aurora World 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.