Correlation Between Kosdaq Composite and Korea Information

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

Diversification Opportunities for Kosdaq Composite and Korea Information

0.72

Correlation Coefficient

Kosdaq Composite  Korea Information

Poor diversification

The 3 months correlation between Kosdaq and Korea is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and Korea Information Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Information 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 Korea Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Information has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and Korea Information go up and down completely randomly.

Pair Corralation between Kosdaq Composite and Korea Information

Assuming the 90 days trading horizon Kosdaq Composite Index is expected to under-perform the Korea Information. In addition to that, Kosdaq Composite is 1.07 times more volatile than Korea Information Engineering. It trades about -0.13 of its total potential returns per unit of risk. Korea Information Engineering is currently generating about -0.11 per unit of volatility. If you would invest  264,500  in Korea Information Engineering on August 31, 2024 and sell it today you would lose (24,500) from holding Korea Information Engineering or give up 9.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Kosdaq Composite Index  vs.  Korea Information Engineering

Pair Trading with Kosdaq Composite and Korea Information

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

The idea behind Kosdaq Composite Index and Korea Information Engineering 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.