Correlation Between Company K and Korean Reinsurance

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

Diversification Opportunities for Company K and Korean Reinsurance

0.23

Correlation Coefficient

Company K  Korean Reinsurance

Modest diversification

The 3 months correlation between Company and Korean is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Company K Partners and Korean Reinsurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Reinsurance 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 Korean Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Reinsurance has no effect on the direction of Company K i.e., Company K and Korean Reinsurance go up and down completely randomly.

Pair Corralation between Company K and Korean Reinsurance

Assuming the 90 days trading horizon Company K Partners is expected to generate 2.33 times more return on investment than Korean Reinsurance. However, Company K is 2.33 times more volatile than Korean Reinsurance Co. It trades about 0.04 of its potential returns per unit of risk. Korean Reinsurance Co is currently generating about -0.02 per unit of risk. If you would invest  494,000  in Company K Partners on December 24, 2024 and sell it today you would earn a total of  21,000  from holding Company K Partners or generate 4.25% return on investment over 90 days.

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

Company K Partners  vs.  Korean Reinsurance Co

Company K Partners

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Company K Partners are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Company K may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Korean Reinsurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Korean Reinsurance Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Korean Reinsurance 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 Korean Reinsurance

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

The idea behind Company K Partners and Korean Reinsurance 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.