Correlation Between Daewoo SBI and Kukdong Oil

Can any of the company-specific risk be diversified away by investing in both Daewoo SBI and Kukdong Oil 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 Daewoo SBI and Kukdong Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daewoo SBI SPAC and Kukdong Oil Chemicals, you can compare the effects of market volatilities on Daewoo SBI and Kukdong Oil 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 Daewoo SBI with a short position of Kukdong Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daewoo SBI and Kukdong Oil.

Diversification Opportunities for Daewoo SBI and Kukdong Oil

0.42

Correlation Coefficient

Daewoo SBI  Kukdong Oil

Very weak diversification

The 3 months correlation between Daewoo and Kukdong is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Daewoo SBI SPAC and Kukdong Oil Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kukdong Oil Chemicals and Daewoo SBI 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 Daewoo SBI SPAC are associated (or correlated) with Kukdong Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kukdong Oil Chemicals has no effect on the direction of Daewoo SBI i.e., Daewoo SBI and Kukdong Oil go up and down completely randomly.

Pair Corralation between Daewoo SBI and Kukdong Oil

Assuming the 90 days trading horizon Daewoo SBI SPAC is expected to generate 2.4 times more return on investment than Kukdong Oil. However, Daewoo SBI is 2.4 times more volatile than Kukdong Oil Chemicals. It trades about 0.06 of its potential returns per unit of risk. Kukdong Oil Chemicals is currently generating about 0.02 per unit of risk. If you would invest  238,500  in Daewoo SBI SPAC on November 28, 2024 and sell it today you would earn a total of  20,500  from holding Daewoo SBI SPAC or generate 8.6% return on investment over 90 days.

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

Daewoo SBI SPAC  vs.  Kukdong Oil Chemicals

Daewoo SBI SPAC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Daewoo SBI SPAC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daewoo SBI sustained solid returns over the last few months and may actually be approaching a breakup point.

Kukdong Oil Chemicals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kukdong Oil Chemicals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Kukdong Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Daewoo SBI and Kukdong Oil

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

The idea behind Daewoo SBI SPAC and Kukdong Oil Chemicals 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.