Correlation Between Kosdaq Composite and DB Financial

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

Diversification Opportunities for Kosdaq Composite and DB Financial

0.8

Correlation Coefficient

Kosdaq Composite  DB Financial

Very poor diversification

The 3 months correlation between Kosdaq and 016610 is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and DB Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DB Financial Investment 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 DB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DB Financial Investment has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and DB Financial go up and down completely randomly.

Pair Corralation between Kosdaq Composite and DB Financial

Assuming the 90 days trading horizon Kosdaq Composite is expected to generate 1.2 times less return on investment than DB Financial. In addition to that, Kosdaq Composite is 1.06 times more volatile than DB Financial Investment. It trades about 0.11 of its total potential returns per unit of risk. DB Financial Investment is currently generating about 0.13 per unit of volatility. If you would invest  523,000  in DB Financial Investment on December 2, 2024 and sell it today you would earn a total of  65,000  from holding DB Financial Investment or generate 12.43% return on investment over 90 days.

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

Kosdaq Composite Index  vs.  DB Financial Investment

Pair Trading with Kosdaq Composite and DB Financial

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

The idea behind Kosdaq Composite Index and DB Financial Investment 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.