Correlation Between Kumho Petro and KEPCO Engineering
Can any of the company-specific risk be diversified away by investing in both Kumho Petro and KEPCO Engineering 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 Kumho Petro and KEPCO Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kumho Petro Chemical and KEPCO Engineering Construction, you can compare the effects of market volatilities on Kumho Petro and KEPCO Engineering 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 Kumho Petro with a short position of KEPCO Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kumho Petro and KEPCO Engineering.
Diversification Opportunities for Kumho Petro and KEPCO Engineering
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Kumho and KEPCO is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Kumho Petro Chemical and KEPCO Engineering Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KEPCO Engineering and Kumho Petro 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 Kumho Petro Chemical are associated (or correlated) with KEPCO Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KEPCO Engineering has no effect on the direction of Kumho Petro i.e., Kumho Petro and KEPCO Engineering go up and down completely randomly.
Pair Corralation between Kumho Petro and KEPCO Engineering
Assuming the 90 days trading horizon Kumho Petro Chemical is expected to under-perform the KEPCO Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Kumho Petro Chemical is 1.21 times less risky than KEPCO Engineering. The stock trades about -0.13 of its potential returns per unit of risk. The KEPCO Engineering Construction is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 6,770,000 in KEPCO Engineering Construction on August 28, 2024 and sell it today you would earn a total of 400,000 from holding KEPCO Engineering Construction or generate 5.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kumho Petro Chemical vs. KEPCO Engineering Construction
Performance |
| Timeline |
| Kumho Petro Chemical |
| KEPCO Engineering |
Kumho Petro and KEPCO Engineering Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kumho Petro and KEPCO Engineering
The main advantage of trading using opposite Kumho Petro and KEPCO Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kumho Petro position performs unexpectedly, KEPCO Engineering 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 KEPCO Engineering will offset losses from the drop in KEPCO Engineering's long position.The idea behind Kumho Petro Chemical and KEPCO Engineering Construction 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.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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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