Correlation Between Solution Advanced and Kumho Industrial

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

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

Diversification Opportunities for Solution Advanced and Kumho Industrial

-0.33

Correlation Coefficient

Solution Advanced  Kumho Industrial

Very good diversification

The 3 months correlation between Solution and Kumho is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Solution Advanced Technology and Kumho Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumho Industrial and Solution Advanced 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 Solution Advanced Technology are associated (or correlated) with Kumho Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumho Industrial has no effect on the direction of Solution Advanced i.e., Solution Advanced and Kumho Industrial go up and down completely randomly.

Pair Corralation between Solution Advanced and Kumho Industrial

Assuming the 90 days trading horizon Solution Advanced Technology is expected to generate 3.03 times more return on investment than Kumho Industrial. However, Solution Advanced is 3.03 times more volatile than Kumho Industrial Co. It trades about 0.16 of its potential returns per unit of risk. Kumho Industrial Co is currently generating about -0.02 per unit of risk. If you would invest  137,500  in Solution Advanced Technology on December 25, 2024 and sell it today you would earn a total of  93,000  from holding Solution Advanced Technology or generate 67.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.25%
Values	Daily Returns

Solution Advanced Technology  vs.  Kumho Industrial Co

Solution Advanced

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solution Advanced Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Solution Advanced sustained solid returns over the last few months and may actually be approaching a breakup point.

Kumho Industrial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Solution Advanced and Kumho Industrial

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

The idea behind Solution Advanced Technology and Kumho Industrial 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.