Correlation Between Top Material and Hyundai

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

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

Diversification Opportunities for Top Material and Hyundai

0.21

Correlation Coefficient

Top Material  Hyundai

Modest diversification

The 3 months correlation between Top and Hyundai is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Top Material Co and Hyundai Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor and Top Material 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 Top Material Co are associated (or correlated) with Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of Top Material i.e., Top Material and Hyundai go up and down completely randomly.

Pair Corralation between Top Material and Hyundai

Assuming the 90 days trading horizon Top Material Co is expected to generate 3.6 times more return on investment than Hyundai. However, Top Material is 3.6 times more volatile than Hyundai Motor Co. It trades about 0.08 of its potential returns per unit of risk. Hyundai Motor Co is currently generating about 0.0 per unit of risk. If you would invest  2,735,000  in Top Material Co on December 4, 2024 and sell it today you would earn a total of  560,000  from holding Top Material Co or generate 20.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Top Material Co  vs.  Hyundai Motor Co

Top Material

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Top Material Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Top Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Hyundai Motor

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Top Material and Hyundai

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

The idea behind Top Material Co and Hyundai Motor 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.

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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.