Correlation Between Kumho Industrial and Formetal

Can any of the company-specific risk be diversified away by investing in both Kumho Industrial and Formetal 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 Kumho Industrial and Formetal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kumho Industrial Co and Formetal Co, you can compare the effects of market volatilities on Kumho Industrial and Formetal 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 Kumho Industrial with a short position of Formetal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kumho Industrial and Formetal.

Diversification Opportunities for Kumho Industrial and Formetal

-0.3

Correlation Coefficient

Kumho Industrial  Formetal

Very good diversification

The 3 months correlation between Kumho and Formetal is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Kumho Industrial Co and Formetal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formetal and Kumho Industrial 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 Kumho Industrial Co are associated (or correlated) with Formetal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formetal has no effect on the direction of Kumho Industrial i.e., Kumho Industrial and Formetal go up and down completely randomly.

Pair Corralation between Kumho Industrial and Formetal

Assuming the 90 days trading horizon Kumho Industrial Co is expected to under-perform the Formetal. But the stock apears to be less risky and, when comparing its historical volatility, Kumho Industrial Co is 1.22 times less risky than Formetal. The stock trades about -0.07 of its potential returns per unit of risk. The Formetal Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  272,000  in Formetal Co on September 16, 2024 and sell it today you would earn a total of  65,500  from holding Formetal Co or generate 24.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Kumho Industrial Co  vs.  Formetal Co

Kumho Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kumho Industrial Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Formetal

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Formetal Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Formetal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kumho Industrial and Formetal

The main advantage of trading using opposite Kumho Industrial and Formetal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kumho Industrial position performs unexpectedly, Formetal 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 Formetal will offset losses from the drop in Formetal's long position.

The idea behind Kumho Industrial Co and Formetal Co 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.