Correlation Between KODEX K and KODEX KRX

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

Diversification Opportunities for KODEX K and KODEX KRX

0.79

Correlation Coefficient

KODEX K  KODEX KRX

Poor diversification

The 3 months correlation between KODEX and KODEX is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding KODEX K Renewable Energy and KODEX KRX Climate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KODEX KRX Climate 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 KRX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KODEX KRX Climate has no effect on the direction of KODEX K i.e., KODEX K and KODEX KRX go up and down completely randomly.

Pair Corralation between KODEX K and KODEX KRX

Assuming the 90 days trading horizon KODEX K Renewable Energy is expected to generate 1.15 times more return on investment than KODEX KRX. However, KODEX K is 1.15 times more volatile than KODEX KRX Climate. It trades about 0.03 of its potential returns per unit of risk. KODEX KRX Climate is currently generating about -0.09 per unit of risk. If you would invest  1,777,000  in KODEX K Renewable Energy on October 27, 2024 and sell it today you would earn a total of  47,500  from holding KODEX K Renewable Energy or generate 2.67% return on investment over 90 days.

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

KODEX K Renewable Energy  vs.  KODEX KRX Climate

KODEX K Renewable

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KODEX K Renewable Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 KRX Climate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with KODEX K and KODEX KRX

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

The idea behind KODEX K Renewable Energy and KODEX KRX Climate 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.