Correlation Between KBSTAR Short and Busan Ind

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

By analyzing existing cross correlation between KBSTAR Short Term IG and Busan Ind, you can compare the effects of market volatilities on KBSTAR Short and Busan Ind 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 KBSTAR Short with a short position of Busan Ind. Check out your portfolio center. Please also check ongoing floating volatility patterns of KBSTAR Short and Busan Ind.

Diversification Opportunities for KBSTAR Short and Busan Ind

0.88

Correlation Coefficient

KBSTAR Short  Busan Ind

Very poor diversification

The 3 months correlation between KBSTAR and Busan is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding KBSTAR Short Term IG and Busan Ind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Busan Ind and KBSTAR Short 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 KBSTAR Short Term IG are associated (or correlated) with Busan Ind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Busan Ind has no effect on the direction of KBSTAR Short i.e., KBSTAR Short and Busan Ind go up and down completely randomly.

Pair Corralation between KBSTAR Short and Busan Ind

Assuming the 90 days trading horizon KBSTAR Short Term IG is expected to generate 0.17 times more return on investment than Busan Ind. However, KBSTAR Short Term IG is 5.91 times less risky than Busan Ind. It trades about 0.1 of its potential returns per unit of risk. Busan Ind is currently generating about 0.02 per unit of risk. If you would invest  947,000  in KBSTAR Short Term IG on October 10, 2024 and sell it today you would earn a total of  270,000  from holding KBSTAR Short Term IG or generate 28.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

KBSTAR Short Term IG  vs.  Busan Ind

KBSTAR Short Term

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KBSTAR Short Term IG are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KBSTAR Short may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Busan Ind

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Busan Ind are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Busan Ind sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KBSTAR Short and Busan Ind

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

The idea behind KBSTAR Short Term IG and Busan Ind 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.