Correlation Between ACE KRX and Busan Industrial
Can any of the company-specific risk be diversified away by investing in both ACE KRX and Busan Industrial 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 ACE KRX and Busan Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ACE KRX Physical and Busan Industrial Co, you can compare the effects of market volatilities on ACE KRX and Busan Industrial 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 ACE KRX with a short position of Busan Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of ACE KRX and Busan Industrial.
Diversification Opportunities for ACE KRX and Busan Industrial
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ACE and Busan is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding ACE KRX Physical and Busan Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Busan Industrial and ACE KRX 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 ACE KRX Physical are associated (or correlated) with Busan Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Busan Industrial has no effect on the direction of ACE KRX i.e., ACE KRX and Busan Industrial go up and down completely randomly.
Pair Corralation between ACE KRX and Busan Industrial
Assuming the 90 days trading horizon ACE KRX is expected to generate 1.38 times less return on investment than Busan Industrial. But when comparing it to its historical volatility, ACE KRX Physical is 4.35 times less risky than Busan Industrial. It trades about 0.12 of its potential returns per unit of risk. Busan Industrial Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 5,620,000 in Busan Industrial Co on September 3, 2024 and sell it today you would earn a total of 520,000 from holding Busan Industrial Co or generate 9.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ACE KRX Physical vs. Busan Industrial Co
Performance |
| Timeline |
| ACE KRX Physical |
| Busan Industrial |
ACE KRX and Busan Industrial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ACE KRX and Busan Industrial
The main advantage of trading using opposite ACE KRX and Busan Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ACE KRX position performs unexpectedly, Busan Industrial 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 Busan Industrial will offset losses from the drop in Busan Industrial's long position.| ACE KRX vs. Busan Industrial Co | ACE KRX vs. Busan Ind | ACE KRX vs. Mirae Asset Daewoo | ACE KRX vs. UNISEM Co |
| Busan Industrial vs. Pureun Mutual Savings | Busan Industrial vs. Atinum Investment Co | Busan Industrial vs. Korea Investment Holdings | Busan Industrial vs. Hanjoo Light Metal |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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