Can any of the company-specific risk be diversified away by investing in both POSCO Holdings and Fuyao Glass 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 POSCO Holdings and Fuyao Glass into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between POSCO Holdings and Fuyao Glass Industry, you can compare the effects of market volatilities on POSCO Holdings and Fuyao Glass 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 POSCO Holdings with a short position of Fuyao Glass. Check out your portfolio center. Please also check ongoing floating volatility patterns of POSCO Holdings and Fuyao Glass.
Diversification Opportunities for POSCO Holdings and Fuyao Glass
The 3 months correlation between POSCO and Fuyao is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and Fuyao Glass Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuyao Glass Industry and POSCO Holdings 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 POSCO Holdings are associated (or correlated) with Fuyao Glass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuyao Glass Industry has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and Fuyao Glass go up and down completely randomly.
Pair Corralation between POSCO Holdings and Fuyao Glass
Assuming the 90 days horizon POSCO Holdings is expected to under-perform the Fuyao Glass. But the stock apears to be less risky and, when comparing its historical volatility, POSCO Holdings is 5.5 times less risky than Fuyao Glass. The stock trades about -0.34 of its potential returns per unit of risk. The Fuyao Glass Industry is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 401.00 in Fuyao Glass Industry on March 6, 2024 and sell it today you would earn a total of 114.00 from holding Fuyao Glass Industry or generate 28.43% return on investment over 90 days.
Over the last 90 days POSCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Fuyao Glass Industry are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fuyao Glass reported solid returns over the last few months and may actually be approaching a breakup point.