Correlation Between Korea Real and Hwashin Precision

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Can any of the company-specific risk be diversified away by investing in both Korea Real and Hwashin Precision 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 Korea Real and Hwashin Precision into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Korea Real Estate and Hwashin Precision Engineering, you can compare the effects of market volatilities on Korea Real and Hwashin Precision 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 Korea Real with a short position of Hwashin Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Real and Hwashin Precision.

Diversification Opportunities for Korea Real and Hwashin Precision

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Korea and Hwashin is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Korea Real Estate and Hwashin Precision Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hwashin Precision and Korea Real 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 Korea Real Estate are associated (or correlated) with Hwashin Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hwashin Precision has no effect on the direction of Korea Real i.e., Korea Real and Hwashin Precision go up and down completely randomly.

Pair Corralation between Korea Real and Hwashin Precision

Assuming the 90 days trading horizon Korea Real Estate is expected to under-perform the Hwashin Precision. But the stock apears to be less risky and, when comparing its historical volatility, Korea Real Estate is 1.91 times less risky than Hwashin Precision. The stock trades about -0.33 of its potential returns per unit of risk. The Hwashin Precision Engineering is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  150,600  in Hwashin Precision Engineering on March 19, 2024 and sell it today you would lose (1,700) from holding Hwashin Precision Engineering or give up 1.13% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Korea Real Estate  vs.  Hwashin Precision Engineering

 Performance 
       Timeline  
Korea Real Estate 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Korea Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Korea Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Hwashin Precision 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Hwashin Precision Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hwashin Precision is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Korea Real and Hwashin Precision Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Korea Real and Hwashin Precision

The main advantage of trading using opposite Korea Real and Hwashin Precision positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korea Real position performs unexpectedly, Hwashin Precision 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 Hwashin Precision will offset losses from the drop in Hwashin Precision's long position.
The idea behind Korea Real Estate and Hwashin Precision Engineering pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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