Correlation Between Korea Information and Woorim Machinery

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

Diversification Opportunities for Korea Information and Woorim Machinery

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Korea and Woorim is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Korea Information Communicatio and Woorim Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woorim Machinery and Korea Information 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 Information Communications are associated (or correlated) with Woorim Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woorim Machinery has no effect on the direction of Korea Information i.e., Korea Information and Woorim Machinery go up and down completely randomly.

Pair Corralation between Korea Information and Woorim Machinery

Assuming the 90 days trading horizon Korea Information is expected to generate 2.69 times less return on investment than Woorim Machinery. But when comparing it to its historical volatility, Korea Information Communications is 3.88 times less risky than Woorim Machinery. It trades about 0.23 of its potential returns per unit of risk. Woorim Machinery Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  482,000  in Woorim Machinery Co on October 15, 2024 and sell it today you would earn a total of  45,000  from holding Woorim Machinery Co or generate 9.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Korea Information Communicatio  vs.  Woorim Machinery Co

 Performance 
       Timeline  
Korea Information 

Risk-Adjusted Performance

0 of 100

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

Risk-Adjusted Performance

0 of 100

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

Korea Information and Woorim Machinery Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Korea Information and Woorim Machinery

The main advantage of trading using opposite Korea Information and Woorim Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korea Information position performs unexpectedly, Woorim Machinery 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 Woorim Machinery will offset losses from the drop in Woorim Machinery's long position.
The idea behind Korea Information Communications and Woorim Machinery Co 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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