Correlation Between Air Busan and POSCO Holdings
Can any of the company-specific risk be diversified away by investing in both Air Busan and POSCO Holdings 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 Air Busan and POSCO Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air Busan Co and POSCO Holdings, you can compare the effects of market volatilities on Air Busan and POSCO Holdings 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 Air Busan with a short position of POSCO Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Busan and POSCO Holdings.
Diversification Opportunities for Air Busan and POSCO Holdings
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Air and POSCO is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Air Busan Co and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings and Air Busan 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 Air Busan Co are associated (or correlated) with POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of Air Busan i.e., Air Busan and POSCO Holdings go up and down completely randomly.
Pair Corralation between Air Busan and POSCO Holdings
Assuming the 90 days trading horizon Air Busan Co is expected to under-perform the POSCO Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Air Busan Co is 1.29 times less risky than POSCO Holdings. The stock trades about -0.05 of its potential returns per unit of risk. The POSCO Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 29,006,800 in POSCO Holdings on October 16, 2024 and sell it today you would lose (3,306,800) from holding POSCO Holdings or give up 11.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air Busan Co vs. POSCO Holdings
Performance |
| Timeline |
| Air Busan |
| POSCO Holdings |
Air Busan and POSCO Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air Busan and POSCO Holdings
The main advantage of trading using opposite Air Busan and POSCO Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Busan position performs unexpectedly, POSCO Holdings 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 POSCO Holdings will offset losses from the drop in POSCO Holdings' long position.| Air Busan vs. Kolon Plastics | Air Busan vs. Chorokbaem Healthcare Co | Air Busan vs. Daejoo Electronic Materials | Air Busan vs. LAKE MATERIALS LTD |
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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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