Correlation Between RF Materials and Cheryong Industrial

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

By analyzing existing cross correlation between RF Materials Co and Cheryong Industrial CoLtd, you can compare the effects of market volatilities on RF Materials and Cheryong Industrial 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 RF Materials with a short position of Cheryong Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of RF Materials and Cheryong Industrial.

Diversification Opportunities for RF Materials and Cheryong Industrial

0.45

Correlation Coefficient

RF Materials  Cheryong Industrial

Very weak diversification

The 3 months correlation between 327260 and Cheryong is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding RF Materials Co and Cheryong Industrial CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheryong Industrial CoLtd and RF Materials 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 RF Materials Co are associated (or correlated) with Cheryong Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheryong Industrial CoLtd has no effect on the direction of RF Materials i.e., RF Materials and Cheryong Industrial go up and down completely randomly.

Pair Corralation between RF Materials and Cheryong Industrial

Assuming the 90 days trading horizon RF Materials is expected to generate 2.52 times less return on investment than Cheryong Industrial. But when comparing it to its historical volatility, RF Materials Co is 1.33 times less risky than Cheryong Industrial. It trades about 0.07 of its potential returns per unit of risk. Cheryong Industrial CoLtd is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  496,091  in Cheryong Industrial CoLtd on November 29, 2024 and sell it today you would earn a total of  175,909  from holding Cheryong Industrial CoLtd or generate 35.46% return on investment over 90 days.

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

RF Materials Co  vs.  Cheryong Industrial CoLtd

RF Materials

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RF Materials Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, RF Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Cheryong Industrial CoLtd

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheryong Industrial CoLtd are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cheryong Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RF Materials and Cheryong Industrial

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

The idea behind RF Materials Co and Cheryong Industrial CoLtd 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.