Correlation Between Hyundai and Preferred Bank

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

By analyzing existing cross correlation between Hyundai Motor and Preferred Bank, you can compare the effects of market volatilities on Hyundai and Preferred Bank 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 Hyundai with a short position of Preferred Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hyundai and Preferred Bank.

Diversification Opportunities for Hyundai and Preferred Bank

-0.75

Correlation Coefficient

Hyundai  Preferred Bank

Pay attention - limited upside

The 3 months correlation between Hyundai and Preferred is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Hyundai Motor and Preferred Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Preferred Bank and Hyundai 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 Hyundai Motor are associated (or correlated) with Preferred Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Preferred Bank has no effect on the direction of Hyundai i.e., Hyundai and Preferred Bank go up and down completely randomly.

Pair Corralation between Hyundai and Preferred Bank

Assuming the 90 days horizon Hyundai Motor is expected to under-perform the Preferred Bank. But the stock apears to be less risky and, when comparing its historical volatility, Hyundai Motor is 1.23 times less risky than Preferred Bank. The stock trades about -0.08 of its potential returns per unit of risk. The Preferred Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,700  in Preferred Bank on October 6, 2024 and sell it today you would earn a total of  600.00  from holding Preferred Bank or generate 7.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	87.18%
Values	Daily Returns

Hyundai Motor  vs.  Preferred Bank

Hyundai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Preferred Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Preferred Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Preferred Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hyundai and Preferred Bank

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

The idea behind Hyundai Motor and Preferred Bank 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.