Correlation Between Shinhan Financial and CareRx

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

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

Diversification Opportunities for Shinhan Financial and CareRx

-0.48

Correlation Coefficient

Shinhan Financial  CareRx

Very good diversification

The 3 months correlation between Shinhan and CareRx is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Shinhan Financial Group and CareRx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CareRx and Shinhan Financial 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 Shinhan Financial Group are associated (or correlated) with CareRx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CareRx has no effect on the direction of Shinhan Financial i.e., Shinhan Financial and CareRx go up and down completely randomly.

Pair Corralation between Shinhan Financial and CareRx

Considering the 90-day investment horizon Shinhan Financial Group is expected to under-perform the CareRx. But the stock apears to be less risky and, when comparing its historical volatility, Shinhan Financial Group is 2.14 times less risky than CareRx. The stock trades about -0.06 of its potential returns per unit of risk. The CareRx is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  128.00  in CareRx on December 21, 2024 and sell it today you would earn a total of  55.00  from holding CareRx or generate 42.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Shinhan Financial Group  vs.  CareRx

Shinhan Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shinhan Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Shinhan Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CareRx

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CareRx are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, CareRx reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shinhan Financial and CareRx

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

The idea behind Shinhan Financial Group and CareRx 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.