Correlation Between Solution Advanced and Kolon Plastics

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

Diversification Opportunities for Solution Advanced and Kolon Plastics

0.63

Correlation Coefficient

Solution Advanced  Kolon Plastics

Poor diversification

The 3 months correlation between Solution and Kolon is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Solution Advanced Technology and Kolon Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kolon Plastics 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 Kolon Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kolon Plastics has no effect on the direction of Solution Advanced i.e., Solution Advanced and Kolon Plastics go up and down completely randomly.

Pair Corralation between Solution Advanced and Kolon Plastics

Assuming the 90 days trading horizon Solution Advanced Technology is expected to under-perform the Kolon Plastics. In addition to that, Solution Advanced is 1.19 times more volatile than Kolon Plastics. It trades about -0.1 of its total potential returns per unit of risk. Kolon Plastics is currently generating about -0.06 per unit of volatility. If you would invest  602,000  in Kolon Plastics on October 10, 2024 and sell it today you would lose (60,000) from holding Kolon Plastics or give up 9.97% of portfolio value over 90 days.

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

Solution Advanced Technology  vs.  Kolon Plastics

Solution Advanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solution Advanced Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Kolon Plastics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kolon Plastics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Solution Advanced and Kolon Plastics

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

The idea behind Solution Advanced Technology and Kolon Plastics 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.