Correlation Between Hyundai Heavy and BHI

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

By analyzing existing cross correlation between Hyundai Heavy Industries and BHI Co, you can compare the effects of market volatilities on Hyundai Heavy and BHI 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 Hyundai Heavy with a short position of BHI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hyundai Heavy and BHI.

Diversification Opportunities for Hyundai Heavy and BHI

-0.45

Correlation Coefficient

Hyundai Heavy  BHI

Very good diversification

The 3 months correlation between Hyundai and BHI is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Hyundai Heavy Industries and BHI Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHI Co and Hyundai Heavy 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 Hyundai Heavy Industries are associated (or correlated) with BHI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHI Co has no effect on the direction of Hyundai Heavy i.e., Hyundai Heavy and BHI go up and down completely randomly.

Pair Corralation between Hyundai Heavy and BHI

Assuming the 90 days trading horizon Hyundai Heavy Industries is expected to under-perform the BHI. But the stock apears to be less risky and, when comparing its historical volatility, Hyundai Heavy Industries is 1.93 times less risky than BHI. The stock trades about -0.03 of its potential returns per unit of risk. The BHI Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,543,000  in BHI Co on December 23, 2024 and sell it today you would earn a total of  472,000  from holding BHI Co or generate 30.59% return on investment over 90 days.

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

Hyundai Heavy Industries  vs.  BHI Co

Hyundai Heavy Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hyundai Heavy Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hyundai Heavy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

BHI Co

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BHI Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BHI sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hyundai Heavy and BHI

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

The idea behind Hyundai Heavy Industries and BHI 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.