Correlation Between KODEX KOSPI and KODEX SP500TR

Can any of the company-specific risk be diversified away by investing in both KODEX KOSPI and KODEX SP500TR 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 KODEX KOSPI and KODEX SP500TR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KODEX KOSPI LargeCap and KODEX SP500TR, you can compare the effects of market volatilities on KODEX KOSPI and KODEX SP500TR 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 KODEX KOSPI with a short position of KODEX SP500TR. Check out your portfolio center. Please also check ongoing floating volatility patterns of KODEX KOSPI and KODEX SP500TR.

Diversification Opportunities for KODEX KOSPI and KODEX SP500TR

-0.28

Correlation Coefficient

KODEX KOSPI  KODEX SP500TR

Very good diversification

The 3 months correlation between KODEX and KODEX is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding KODEX KOSPI LargeCap and KODEX SP500TR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KODEX SP500TR and KODEX KOSPI 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 KODEX KOSPI LargeCap are associated (or correlated) with KODEX SP500TR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KODEX SP500TR has no effect on the direction of KODEX KOSPI i.e., KODEX KOSPI and KODEX SP500TR go up and down completely randomly.

Pair Corralation between KODEX KOSPI and KODEX SP500TR

Assuming the 90 days trading horizon KODEX KOSPI LargeCap is expected to generate 1.08 times more return on investment than KODEX SP500TR. However, KODEX KOSPI is 1.08 times more volatile than KODEX SP500TR. It trades about 0.19 of its potential returns per unit of risk. KODEX SP500TR is currently generating about -0.08 per unit of risk. If you would invest  1,179,500  in KODEX KOSPI LargeCap on December 22, 2024 and sell it today you would earn a total of  118,500  from holding KODEX KOSPI LargeCap or generate 10.05% return on investment over 90 days.

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

KODEX KOSPI LargeCap  vs.  KODEX SP500TR

KODEX KOSPI LargeCap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KODEX KOSPI LargeCap are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KODEX KOSPI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

KODEX SP500TR

Risk-Adjusted Performance

Very Weak

Over the last 90 days KODEX SP500TR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KODEX SP500TR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with KODEX KOSPI and KODEX SP500TR

The main advantage of trading using opposite KODEX KOSPI and KODEX SP500TR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KODEX KOSPI position performs unexpectedly, KODEX SP500TR 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 KODEX SP500TR will offset losses from the drop in KODEX SP500TR's long position.

The idea behind KODEX KOSPI LargeCap and KODEX SP500TR 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.