Correlation Between Song Ho and I Jang

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

By analyzing existing cross correlation between Song Ho Industrial and I Jang Industrial, you can compare the effects of market volatilities on Song Ho and I Jang 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 Song Ho with a short position of I Jang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Ho and I Jang.

Diversification Opportunities for Song Ho and I Jang

0.18

Correlation Coefficient

Song Ho  I Jang

Average diversification

The 3 months correlation between Song and 8342 is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Song Ho Industrial and I Jang Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on I Jang Industrial and Song Ho 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 Song Ho Industrial are associated (or correlated) with I Jang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of I Jang Industrial has no effect on the direction of Song Ho i.e., Song Ho and I Jang go up and down completely randomly.

Pair Corralation between Song Ho and I Jang

Assuming the 90 days trading horizon Song Ho Industrial is expected to under-perform the I Jang. But the stock apears to be less risky and, when comparing its historical volatility, Song Ho Industrial is 3.81 times less risky than I Jang. The stock trades about -0.06 of its potential returns per unit of risk. The I Jang Industrial is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  8,850  in I Jang Industrial on September 25, 2024 and sell it today you would lose (60.00) from holding I Jang Industrial or give up 0.68% of portfolio value over 90 days.

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

Song Ho Industrial  vs.  I Jang Industrial

Song Ho Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Song Ho Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Song Ho is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

I Jang Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days I Jang Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, I Jang is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Song Ho and I Jang

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

The idea behind Song Ho Industrial and I Jang Industrial 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.