Correlation Between Korean Air and Automobile

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Can any of the company-specific risk be diversified away by investing in both Korean Air and Automobile 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 Korean Air and Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Korean Air Lines and Automobile Pc, you can compare the effects of market volatilities on Korean Air and Automobile 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 Korean Air with a short position of Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korean Air and Automobile.

Diversification Opportunities for Korean Air and Automobile

-0.22
  Correlation Coefficient

Very good diversification

The 3 months correlation between Korean and Automobile is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Automobile Pc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automobile Pc and Korean Air 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 Korean Air Lines are associated (or correlated) with Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automobile Pc has no effect on the direction of Korean Air i.e., Korean Air and Automobile go up and down completely randomly.

Pair Corralation between Korean Air and Automobile

Assuming the 90 days trading horizon Korean Air Lines is expected to generate 0.35 times more return on investment than Automobile. However, Korean Air Lines is 2.87 times less risky than Automobile. It trades about 0.24 of its potential returns per unit of risk. Automobile Pc is currently generating about 0.0 per unit of risk. If you would invest  2,390,000  in Korean Air Lines on September 1, 2024 and sell it today you would earn a total of  205,000  from holding Korean Air Lines or generate 8.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Korean Air Lines  vs.  Automobile Pc

 Performance 
       Timeline  
Korean Air Lines 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Air sustained solid returns over the last few months and may actually be approaching a breakup point.
Automobile Pc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Automobile Pc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Automobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Korean Air and Automobile Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Korean Air and Automobile

The main advantage of trading using opposite Korean Air and Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korean Air position performs unexpectedly, Automobile 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 Automobile will offset losses from the drop in Automobile's long position.
The idea behind Korean Air Lines and Automobile Pc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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