Correlation Between Kakao Games and Samsung SDI
Can any of the company-specific risk be diversified away by investing in both Kakao Games and Samsung SDI 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 Kakao Games and Samsung SDI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kakao Games Corp and Samsung SDI, you can compare the effects of market volatilities on Kakao Games and Samsung SDI 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 Kakao Games with a short position of Samsung SDI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kakao Games and Samsung SDI.
Diversification Opportunities for Kakao Games and Samsung SDI
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Kakao and Samsung is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Kakao Games Corp and Samsung SDI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Samsung SDI and Kakao Games 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 Kakao Games Corp are associated (or correlated) with Samsung SDI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Samsung SDI has no effect on the direction of Kakao Games i.e., Kakao Games and Samsung SDI go up and down completely randomly.
Pair Corralation between Kakao Games and Samsung SDI
Assuming the 90 days trading horizon Kakao Games Corp is expected to generate 0.66 times more return on investment than Samsung SDI. However, Kakao Games Corp is 1.52 times less risky than Samsung SDI. It trades about -0.08 of its potential returns per unit of risk. Samsung SDI is currently generating about -0.17 per unit of risk. If you would invest 1,638,000 in Kakao Games Corp on October 31, 2024 and sell it today you would lose (44,000) from holding Kakao Games Corp or give up 2.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kakao Games Corp vs. Samsung SDI
Performance |
| Timeline |
| Kakao Games Corp |
| Samsung SDI |
Kakao Games and Samsung SDI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kakao Games and Samsung SDI
The main advantage of trading using opposite Kakao Games and Samsung SDI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kakao Games position performs unexpectedly, Samsung SDI 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 Samsung SDI will offset losses from the drop in Samsung SDI's long position.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 Kakao Games 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. Kakao Games' 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, Kakao Games' 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 Kakao Games Corp.
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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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