Correlation Between Kosdaq Composite and Kumho Industrial

Can any of the company-specific risk be diversified away by investing in both Kosdaq Composite and Kumho Industrial 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 Kumho Industrial 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 Kumho Industrial Co, you can compare the effects of market volatilities on Kosdaq Composite and Kumho Industrial 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 Kumho Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kosdaq Composite and Kumho Industrial.

Diversification Opportunities for Kosdaq Composite and Kumho Industrial

-0.29

Correlation Coefficient

Kosdaq Composite  Kumho Industrial

Very good diversification

The 3 months correlation between Kosdaq and Kumho is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and Kumho Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumho 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 Kumho Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumho Industrial has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and Kumho Industrial go up and down completely randomly.

Pair Corralation between Kosdaq Composite and Kumho Industrial

Assuming the 90 days trading horizon Kosdaq Composite Index is expected to generate 0.63 times more return on investment than Kumho Industrial. However, Kosdaq Composite Index is 1.6 times less risky than Kumho Industrial. It trades about 0.11 of its potential returns per unit of risk. Kumho Industrial Co is currently generating about -0.05 per unit of risk. If you would invest  67,584  in Kosdaq Composite Index on December 1, 2024 and sell it today you would earn a total of  6,812  from holding Kosdaq Composite Index or generate 10.08% return on investment over 90 days.

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

Kosdaq Composite Index  vs.  Kumho Industrial Co

Pair Trading with Kosdaq Composite and Kumho Industrial

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

The idea behind Kosdaq Composite Index and Kumho Industrial Co 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.