Correlation Between Kosdaq Composite and BHI

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

Diversification Opportunities for Kosdaq Composite and BHI

-0.63

Correlation Coefficient

Kosdaq Composite  BHI

Excellent diversification

The 3 months correlation between Kosdaq and BHI is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and BHI Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHI Co 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 BHI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHI Co has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and BHI go up and down completely randomly.

Pair Corralation between Kosdaq Composite and BHI

Assuming the 90 days trading horizon Kosdaq Composite is expected to generate 20.02 times less return on investment than BHI. But when comparing it to its historical volatility, Kosdaq Composite Index is 2.71 times less risky than BHI. It trades about 0.01 of its potential returns per unit of risk. BHI Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  690,000  in BHI Co on October 11, 2024 and sell it today you would earn a total of  803,000  from holding BHI Co or generate 116.38% return on investment over 90 days.

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

Kosdaq Composite Index  vs.  BHI Co

Pair Trading with Kosdaq Composite and BHI

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

The idea behind Kosdaq Composite Index and BHI 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 Global Correlations module to find global opportunities by holding instruments from different markets.