Correlation Between Kakao Games and EBEST Investment
Can any of the company-specific risk be diversified away by investing in both Kakao Games and EBEST Investment 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 EBEST Investment 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 EBEST Investment Securities, you can compare the effects of market volatilities on Kakao Games and EBEST Investment 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 EBEST Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kakao Games and EBEST Investment.
Diversification Opportunities for Kakao Games and EBEST Investment
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Kakao and EBEST is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Kakao Games Corp and EBEST Investment Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EBEST Investment Sec 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 EBEST Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EBEST Investment Sec has no effect on the direction of Kakao Games i.e., Kakao Games and EBEST Investment go up and down completely randomly.
Pair Corralation between Kakao Games and EBEST Investment
Assuming the 90 days trading horizon Kakao Games Corp is expected to under-perform the EBEST Investment. In addition to that, Kakao Games is 1.12 times more volatile than EBEST Investment Securities. It trades about -0.09 of its total potential returns per unit of risk. EBEST Investment Securities is currently generating about -0.01 per unit of volatility. If you would invest 449,165 in EBEST Investment Securities on September 1, 2024 and sell it today you would lose (53,665) from holding EBEST Investment Securities or give up 11.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kakao Games Corp vs. EBEST Investment Securities
Performance |
| Timeline |
| Kakao Games Corp |
| EBEST Investment Sec |
Kakao Games and EBEST Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kakao Games and EBEST Investment
The main advantage of trading using opposite Kakao Games and EBEST Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kakao Games position performs unexpectedly, EBEST Investment 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 EBEST Investment will offset losses from the drop in EBEST Investment's long position.| Ford vs. Kakao Games | ||
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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