Correlation Between EBEST Investment and Maeil Dairies
Can any of the company-specific risk be diversified away by investing in both EBEST Investment and Maeil Dairies 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 EBEST Investment and Maeil Dairies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EBEST Investment Securities and Maeil Dairies Co, you can compare the effects of market volatilities on EBEST Investment and Maeil Dairies 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 EBEST Investment with a short position of Maeil Dairies. Check out your portfolio center. Please also check ongoing floating volatility patterns of EBEST Investment and Maeil Dairies.
Diversification Opportunities for EBEST Investment and Maeil Dairies
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between EBEST and Maeil is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding EBEST Investment Securities and Maeil Dairies Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maeil Dairies and EBEST Investment 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 EBEST Investment Securities are associated (or correlated) with Maeil Dairies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maeil Dairies has no effect on the direction of EBEST Investment i.e., EBEST Investment and Maeil Dairies go up and down completely randomly.
Pair Corralation between EBEST Investment and Maeil Dairies
Assuming the 90 days trading horizon EBEST Investment Securities is expected to generate 1.72 times more return on investment than Maeil Dairies. However, EBEST Investment is 1.72 times more volatile than Maeil Dairies Co. It trades about 0.0 of its potential returns per unit of risk. Maeil Dairies Co is currently generating about -0.07 per unit of risk. If you would invest 424,912 in EBEST Investment Securities on November 3, 2024 and sell it today you would lose (25,912) from holding EBEST Investment Securities or give up 6.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EBEST Investment Securities vs. Maeil Dairies Co
Performance |
| Timeline |
| EBEST Investment Sec |
| Maeil Dairies |
EBEST Investment and Maeil Dairies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EBEST Investment and Maeil Dairies
The main advantage of trading using opposite EBEST Investment and Maeil Dairies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EBEST Investment position performs unexpectedly, Maeil Dairies 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 Maeil Dairies will offset losses from the drop in Maeil Dairies' long position.| EBEST Investment vs. Jeju Beer Co | EBEST Investment vs. Namhae Chemical | EBEST Investment vs. Kukdong Oil Chemicals | EBEST Investment vs. Kukdo Chemical Co |
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Maeil Dairies as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Maeil Dairies' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Maeil Dairies' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Maeil Dairies Co.
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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