Correlation Between Kosdaq Composite and Digital Imaging

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

Diversification Opportunities for Kosdaq Composite and Digital Imaging

0.87

Correlation Coefficient

Kosdaq Composite  Digital Imaging

Very poor diversification

The 3 months correlation between Kosdaq and Digital is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and Digital Imaging Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Imaging Tech 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 Digital Imaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Imaging Tech has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and Digital Imaging go up and down completely randomly.

Pair Corralation between Kosdaq Composite and Digital Imaging

Assuming the 90 days trading horizon Kosdaq Composite is expected to generate 9.35 times less return on investment than Digital Imaging. But when comparing it to its historical volatility, Kosdaq Composite Index is 2.14 times less risky than Digital Imaging. It trades about 0.05 of its potential returns per unit of risk. Digital Imaging Technology is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,092,000  in Digital Imaging Technology on September 20, 2024 and sell it today you would earn a total of  211,000  from holding Digital Imaging Technology or generate 19.32% 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.  Digital Imaging Technology

Pair Trading with Kosdaq Composite and Digital Imaging

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

The idea behind Kosdaq Composite Index and Digital Imaging Technology 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..