Correlation Between KODEX K and KODEX KOSPI

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

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

Diversification Opportunities for KODEX K and KODEX KOSPI

0.85

Correlation Coefficient

KODEX K  KODEX KOSPI

Very poor diversification

The 3 months correlation between KODEX and KODEX is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding KODEX K Renewable Energy and KODEX KOSPI LargeCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KODEX KOSPI LargeCap and KODEX K 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 K Renewable Energy are associated (or correlated) with KODEX KOSPI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KODEX KOSPI LargeCap has no effect on the direction of KODEX K i.e., KODEX K and KODEX KOSPI go up and down completely randomly.

Pair Corralation between KODEX K and KODEX KOSPI

Assuming the 90 days trading horizon KODEX K Renewable Energy is expected to under-perform the KODEX KOSPI. In addition to that, KODEX K is 1.72 times more volatile than KODEX KOSPI LargeCap. It trades about -0.05 of its total potential returns per unit of risk. KODEX KOSPI LargeCap is currently generating about -0.04 per unit of volatility. If you would invest  1,268,500  in KODEX KOSPI LargeCap on October 12, 2024 and sell it today you would lose (39,000) from holding KODEX KOSPI LargeCap or give up 3.07% of portfolio value over 90 days.

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

KODEX K Renewable Energy  vs.  KODEX KOSPI LargeCap

KODEX K Renewable

Risk-Adjusted Performance

0 of 100

Very Weak

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

KODEX KOSPI LargeCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KODEX KOSPI LargeCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KODEX KOSPI 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 K and KODEX KOSPI

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

The idea behind KODEX K Renewable Energy and KODEX KOSPI LargeCap 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.