Correlation Between Coloray International and Kolon Plastics

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

By analyzing existing cross correlation between Coloray International Investment and Kolon Plastics, you can compare the effects of market volatilities on Coloray International and Kolon Plastics 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 Coloray International with a short position of Kolon Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coloray International and Kolon Plastics.

Diversification Opportunities for Coloray International and Kolon Plastics

0.83

Correlation Coefficient

Coloray International  Kolon Plastics

Very poor diversification

The 3 months correlation between Coloray and Kolon is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Coloray International Investme and Kolon Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kolon Plastics and Coloray International 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 Coloray International Investment are associated (or correlated) with Kolon Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kolon Plastics has no effect on the direction of Coloray International i.e., Coloray International and Kolon Plastics go up and down completely randomly.

Pair Corralation between Coloray International and Kolon Plastics

Assuming the 90 days trading horizon Coloray International Investment is expected to generate 1.27 times more return on investment than Kolon Plastics. However, Coloray International is 1.27 times more volatile than Kolon Plastics. It trades about 0.44 of its potential returns per unit of risk. Kolon Plastics is currently generating about 0.1 per unit of risk. If you would invest  56,500  in Coloray International Investment on October 12, 2024 and sell it today you would earn a total of  10,500  from holding Coloray International Investment or generate 18.58% return on investment over 90 days.

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

Coloray International Investme  vs.  Kolon Plastics

Coloray International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Kolon Plastics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Coloray International and Kolon Plastics

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

The idea behind Coloray International Investment and Kolon Plastics 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.