Correlation Between Webzen and SFA Engineering
Can any of the company-specific risk be diversified away by investing in both Webzen and SFA 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 Webzen and SFA Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Webzen Inc and SFA Engineering, you can compare the effects of market volatilities on Webzen and SFA 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 Webzen with a short position of SFA Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Webzen and SFA Engineering.
Diversification Opportunities for Webzen and SFA Engineering
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Webzen and SFA is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Webzen Inc and SFA Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SFA Engineering and Webzen 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 Webzen Inc are associated (or correlated) with SFA Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SFA Engineering has no effect on the direction of Webzen i.e., Webzen and SFA Engineering go up and down completely randomly.
Pair Corralation between Webzen and SFA Engineering
Assuming the 90 days trading horizon Webzen Inc is expected to under-perform the SFA Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Webzen Inc is 2.09 times less risky than SFA Engineering. The stock trades about -0.27 of its potential returns per unit of risk. The SFA Engineering is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,115,000 in SFA Engineering on September 1, 2024 and sell it today you would earn a total of 15,000 from holding SFA Engineering or generate 0.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Webzen Inc vs. SFA Engineering
Performance |
| Timeline |
| Webzen Inc |
| SFA Engineering |
Webzen and SFA Engineering Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Webzen and SFA Engineering
The main advantage of trading using opposite Webzen and SFA Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Webzen position performs unexpectedly, SFA 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 SFA Engineering will offset losses from the drop in SFA Engineering's long position.The idea behind Webzen Inc and SFA Engineering 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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