Correlation Between Kosdaq Composite and BGF Retail

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

Diversification Opportunities for Kosdaq Composite and BGF Retail

0.43

Correlation Coefficient

Kosdaq Composite  BGF Retail

Very weak diversification

The 3 months correlation between Kosdaq and BGF is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and BGF Retail Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BGF Retail 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 BGF Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BGF Retail has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and BGF Retail go up and down completely randomly.

Pair Corralation between Kosdaq Composite and BGF Retail

Assuming the 90 days trading horizon Kosdaq Composite Index is not expected to generate positive returns. However, Kosdaq Composite Index is 1.27 times less risky than BGF Retail. It waists most of its returns potential to compensate for thr risk taken. BGF Retail is generating about -0.06 per unit of risk. If you would invest  71,522  in Kosdaq Composite Index on September 2, 2024 and sell it today you would lose (3,703) from holding Kosdaq Composite Index or give up 5.18% of portfolio value over 90 days.

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

Kosdaq Composite Index  vs.  BGF Retail Co

Pair Trading with Kosdaq Composite and BGF Retail

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

The idea behind Kosdaq Composite Index and BGF Retail 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.