Correlation Between Company K and Hanjin Transportation

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

By analyzing existing cross correlation between Company K Partners and Hanjin Transportation Co, you can compare the effects of market volatilities on Company K and Hanjin Transportation 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 Company K with a short position of Hanjin Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Company K and Hanjin Transportation.

Diversification Opportunities for Company K and Hanjin Transportation

0.34

Correlation Coefficient

Company K  Hanjin Transportation

Weak diversification

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

Pair Corralation between Company K and Hanjin Transportation

Assuming the 90 days trading horizon Company K Partners is expected to generate 2.63 times more return on investment than Hanjin Transportation. However, Company K is 2.63 times more volatile than Hanjin Transportation Co. It trades about 0.01 of its potential returns per unit of risk. Hanjin Transportation Co is currently generating about 0.0 per unit of risk. If you would invest  613,000  in Company K Partners on October 4, 2024 and sell it today you would lose (128,000) from holding Company K Partners or give up 20.88% of portfolio value over 90 days.

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

Company K Partners  vs.  Hanjin Transportation Co

Company K Partners

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hanjin Transportation

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hanjin Transportation Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hanjin Transportation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Company K and Hanjin Transportation

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

The idea behind Company K Partners and Hanjin Transportation 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.