Correlation Between Hurum and Korean Air

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

By analyzing existing cross correlation between Hurum Co and Korean Air Lines, you can compare the effects of market volatilities on Hurum and Korean Air 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 Hurum with a short position of Korean Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hurum and Korean Air.

Diversification Opportunities for Hurum and Korean Air

0.38

Correlation Coefficient

Hurum  Korean Air

Weak diversification

The 3 months correlation between Hurum and Korean is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Hurum Co and Korean Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Air Lines and Hurum 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 Hurum Co are associated (or correlated) with Korean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Air Lines has no effect on the direction of Hurum i.e., Hurum and Korean Air go up and down completely randomly.

Pair Corralation between Hurum and Korean Air

Assuming the 90 days trading horizon Hurum Co is expected to under-perform the Korean Air. But the stock apears to be less risky and, when comparing its historical volatility, Hurum Co is 1.39 times less risky than Korean Air. The stock trades about -0.07 of its potential returns per unit of risk. The Korean Air Lines is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,305,000  in Korean Air Lines on December 25, 2024 and sell it today you would lose (75,000) from holding Korean Air Lines or give up 3.25% of portfolio value over 90 days.

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

Hurum Co  vs.  Korean Air Lines

Hurum

Risk-Adjusted Performance

Very Weak

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

Korean Air Lines

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hurum and Korean Air

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

The idea behind Hurum Co and Korean Air Lines 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..