Correlation Between POSCO Holdings and Headwater Exploration

Can any of the company-specific risk be diversified away by investing in both POSCO Holdings and Headwater Exploration 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 POSCO Holdings and Headwater Exploration into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between POSCO Holdings and Headwater Exploration, you can compare the effects of market volatilities on POSCO Holdings and Headwater Exploration 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 POSCO Holdings with a short position of Headwater Exploration. Check out your portfolio center. Please also check ongoing floating volatility patterns of POSCO Holdings and Headwater Exploration.

Diversification Opportunities for POSCO Holdings and Headwater Exploration

-0.35

Correlation Coefficient

POSCO Holdings  Headwater Exploration

Very good diversification

The 3 months correlation between POSCO and Headwater is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and Headwater Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Headwater Exploration and POSCO Holdings 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 POSCO Holdings are associated (or correlated) with Headwater Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Headwater Exploration has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and Headwater Exploration go up and down completely randomly.

Pair Corralation between POSCO Holdings and Headwater Exploration

Considering the 90-day investment horizon POSCO Holdings is expected to under-perform the Headwater Exploration. In addition to that, POSCO Holdings is 1.29 times more volatile than Headwater Exploration. It trades about -0.21 of its total potential returns per unit of risk. Headwater Exploration is currently generating about 0.04 per unit of volatility. If you would invest  460.00  in Headwater Exploration on September 12, 2024 and sell it today you would earn a total of  20.00  from holding Headwater Exploration or generate 4.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

POSCO Holdings  vs.  Headwater Exploration

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Headwater Exploration

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Headwater Exploration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Headwater Exploration is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with POSCO Holdings and Headwater Exploration

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

The idea behind POSCO Holdings and Headwater Exploration 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.