Correlation Between Korea Steel and Han Kook
Can any of the company-specific risk be diversified away by investing in both Korea Steel and Han Kook 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 Korea Steel and Han Kook into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Korea Steel Co and Han Kook Steel, you can compare the effects of market volatilities on Korea Steel and Han Kook 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 Korea Steel with a short position of Han Kook. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Steel and Han Kook.
Diversification Opportunities for Korea Steel and Han Kook
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Korea and Han is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Korea Steel Co and Han Kook Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Han Kook Steel and Korea Steel 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 Korea Steel Co are associated (or correlated) with Han Kook. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Han Kook Steel has no effect on the direction of Korea Steel i.e., Korea Steel and Han Kook go up and down completely randomly.
Pair Corralation between Korea Steel and Han Kook
Assuming the 90 days trading horizon Korea Steel Co is expected to under-perform the Han Kook. But the stock apears to be less risky and, when comparing its historical volatility, Korea Steel Co is 1.33 times less risky than Han Kook. The stock trades about -0.18 of its potential returns per unit of risk. The Han Kook Steel is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 198,600 in Han Kook Steel on August 28, 2024 and sell it today you would lose (4,100) from holding Han Kook Steel or give up 2.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Korea Steel Co vs. Han Kook Steel
Performance |
| Timeline |
| Korea Steel |
| Han Kook Steel |
Korea Steel and Han Kook Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Korea Steel and Han Kook
The main advantage of trading using opposite Korea Steel and Han Kook positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korea Steel position performs unexpectedly, Han Kook 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 Han Kook will offset losses from the drop in Han Kook's long position.The idea behind Korea Steel Co and Han Kook Steel 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.| Han Kook vs. Fine Besteel Co | Han Kook vs. Seoyon Topmetal Co | Han Kook vs. Daiyang Metal Co | Han Kook vs. Pureun Mutual Savings |
Check out your portfolio center.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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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