Correlation Between Formetal and Jeju Air
Can any of the company-specific risk be diversified away by investing in both Formetal and Jeju Air 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 Formetal and Jeju Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formetal Co and Jeju Air Co, you can compare the effects of market volatilities on Formetal and Jeju Air 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 Formetal with a short position of Jeju Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formetal and Jeju Air.
Diversification Opportunities for Formetal and Jeju Air
Average diversification
The 3 months correlation between Formetal and Jeju is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Formetal Co and Jeju Air Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jeju Air and Formetal 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 Formetal Co are associated (or correlated) with Jeju Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jeju Air has no effect on the direction of Formetal i.e., Formetal and Jeju Air go up and down completely randomly.
Pair Corralation between Formetal and Jeju Air
Assuming the 90 days trading horizon Formetal Co is expected to under-perform the Jeju Air. But the stock apears to be less risky and, when comparing its historical volatility, Formetal Co is 1.4 times less risky than Jeju Air. The stock trades about -0.09 of its potential returns per unit of risk. The Jeju Air Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 894,000 in Jeju Air Co on August 29, 2024 and sell it today you would earn a total of 67,000 from holding Jeju Air Co or generate 7.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formetal Co vs. Jeju Air Co
Performance |
| Timeline |
| Formetal |
| Jeju Air |
Formetal and Jeju Air Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formetal and Jeju Air
The main advantage of trading using opposite Formetal and Jeju Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formetal position performs unexpectedly, Jeju Air 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 Jeju Air will offset losses from the drop in Jeju Air's long position.The idea behind Formetal Co and Jeju Air 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.| Jeju Air vs. Samsung Electronics Co | Jeju Air vs. Samsung Electronics Co | Jeju Air vs. Hyundai Motor Co | Jeju Air vs. Hyundai Motor |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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