Correlation Between Kosdaq Composite and Samhwa Paint

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

By analyzing existing cross correlation between Kosdaq Composite Index and Samhwa Paint Industrial, you can compare the effects of market volatilities on Kosdaq Composite and Samhwa Paint 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 Kosdaq Composite with a short position of Samhwa Paint. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kosdaq Composite and Samhwa Paint.

Diversification Opportunities for Kosdaq Composite and Samhwa Paint

0.01

Correlation Coefficient

Kosdaq Composite  Samhwa Paint

Significant diversification

The 3 months correlation between Kosdaq and Samhwa is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and Samhwa Paint Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Samhwa Paint Industrial and Kosdaq Composite 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 Kosdaq Composite Index are associated (or correlated) with Samhwa Paint. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Samhwa Paint Industrial has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and Samhwa Paint go up and down completely randomly.

Pair Corralation between Kosdaq Composite and Samhwa Paint

Assuming the 90 days trading horizon Kosdaq Composite Index is expected to generate 0.83 times more return on investment than Samhwa Paint. However, Kosdaq Composite Index is 1.21 times less risky than Samhwa Paint. It trades about 0.15 of its potential returns per unit of risk. Samhwa Paint Industrial is currently generating about 0.04 per unit of risk. If you would invest  67,819  in Kosdaq Composite Index on November 29, 2024 and sell it today you would earn a total of  9,231  from holding Kosdaq Composite Index or generate 13.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Kosdaq Composite Index  vs.  Samhwa Paint Industrial

Pair Trading with Kosdaq Composite and Samhwa Paint

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

The idea behind Kosdaq Composite Index and Samhwa Paint 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.