Correlation Between Kosdaq Composite and KODEX KRX

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

Diversification Opportunities for Kosdaq Composite and KODEX KRX

0.86

Correlation Coefficient

Kosdaq Composite  KODEX KRX

Very poor diversification

The 3 months correlation between Kosdaq and KODEX is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and KODEX KRX Climate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KODEX KRX Climate 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 KODEX KRX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KODEX KRX Climate has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and KODEX KRX go up and down completely randomly.

Pair Corralation between Kosdaq Composite and KODEX KRX

Assuming the 90 days trading horizon Kosdaq Composite is expected to generate 2.6 times less return on investment than KODEX KRX. But when comparing it to its historical volatility, Kosdaq Composite Index is 1.12 times less risky than KODEX KRX. It trades about 0.01 of its potential returns per unit of risk. KODEX KRX Climate is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  900,237  in KODEX KRX Climate on October 12, 2024 and sell it today you would earn a total of  40,763  from holding KODEX KRX Climate or generate 4.53% 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.  KODEX KRX Climate

Pair Trading with Kosdaq Composite and KODEX KRX

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

The idea behind Kosdaq Composite Index and KODEX KRX Climate 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.