Correlation Between SK Chemicals and KG Eco

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

By analyzing existing cross correlation between SK Chemicals Co and KG Eco Technology, you can compare the effects of market volatilities on SK Chemicals and KG Eco 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 SK Chemicals with a short position of KG Eco. Check out your portfolio center. Please also check ongoing floating volatility patterns of SK Chemicals and KG Eco.

Diversification Opportunities for SK Chemicals and KG Eco

0.76

Correlation Coefficient

SK Chemicals  KG Eco

Poor diversification

The 3 months correlation between 285130 and 151860 is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding SK Chemicals Co and KG Eco Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KG Eco Technology and SK Chemicals 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 SK Chemicals Co are associated (or correlated) with KG Eco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KG Eco Technology has no effect on the direction of SK Chemicals i.e., SK Chemicals and KG Eco go up and down completely randomly.

Pair Corralation between SK Chemicals and KG Eco

Assuming the 90 days trading horizon SK Chemicals Co is expected to under-perform the KG Eco. But the stock apears to be less risky and, when comparing its historical volatility, SK Chemicals Co is 1.26 times less risky than KG Eco. The stock trades about -0.04 of its potential returns per unit of risk. The KG Eco Technology is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  551,205  in KG Eco Technology on October 9, 2024 and sell it today you would lose (45,205) from holding KG Eco Technology or give up 8.2% of portfolio value over 90 days.

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

SK Chemicals Co  vs.  KG Eco Technology

SK Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SK Chemicals Co 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.

KG Eco Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SK Chemicals and KG Eco

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

The idea behind SK Chemicals Co and KG Eco Technology 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.