Correlation Between Kakao Games and TOPMATERIAL
Can any of the company-specific risk be diversified away by investing in both Kakao Games and TOPMATERIAL 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 TOPMATERIAL 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 TOPMATERIAL LTD, you can compare the effects of market volatilities on Kakao Games and TOPMATERIAL 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 TOPMATERIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kakao Games and TOPMATERIAL.
Diversification Opportunities for Kakao Games and TOPMATERIAL
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Kakao and TOPMATERIAL is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Kakao Games Corp and TOPMATERIAL LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOPMATERIAL LTD 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 TOPMATERIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOPMATERIAL LTD has no effect on the direction of Kakao Games i.e., Kakao Games and TOPMATERIAL go up and down completely randomly.
Pair Corralation between Kakao Games and TOPMATERIAL
Assuming the 90 days trading horizon Kakao Games Corp is expected to generate 0.76 times more return on investment than TOPMATERIAL. However, Kakao Games Corp is 1.32 times less risky than TOPMATERIAL. It trades about 0.05 of its potential returns per unit of risk. TOPMATERIAL LTD is currently generating about -0.25 per unit of risk. If you would invest 1,776,000 in Kakao Games Corp on September 1, 2024 and sell it today you would earn a total of 39,000 from holding Kakao Games Corp or generate 2.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kakao Games Corp vs. TOPMATERIAL LTD
Performance |
| Timeline |
| Kakao Games Corp |
| TOPMATERIAL LTD |
Kakao Games and TOPMATERIAL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kakao Games and TOPMATERIAL
The main advantage of trading using opposite Kakao Games and TOPMATERIAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kakao Games position performs unexpectedly, TOPMATERIAL 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 TOPMATERIAL will offset losses from the drop in TOPMATERIAL's long position.| Alphabet 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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