Correlation Between Korean Air and Next Entertainment

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

By analyzing existing cross correlation between Korean Air Lines and Next Entertainment World, you can compare the effects of market volatilities on Korean Air and Next Entertainment 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 Korean Air with a short position of Next Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korean Air and Next Entertainment.

Diversification Opportunities for Korean Air and Next Entertainment

-0.45

Correlation Coefficient

Korean Air  Next Entertainment

Very good diversification

The 3 months correlation between Korean and Next is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Korean Air Lines and Next Entertainment World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Entertainment World and Korean Air 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 Korean Air Lines are associated (or correlated) with Next Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Entertainment World has no effect on the direction of Korean Air i.e., Korean Air and Next Entertainment go up and down completely randomly.

Pair Corralation between Korean Air and Next Entertainment

Assuming the 90 days trading horizon Korean Air Lines is expected to generate 0.5 times more return on investment than Next Entertainment. However, Korean Air Lines is 2.02 times less risky than Next Entertainment. It trades about 0.06 of its potential returns per unit of risk. Next Entertainment World is currently generating about -0.01 per unit of risk. If you would invest  2,270,000  in Korean Air Lines on September 26, 2024 and sell it today you would earn a total of  125,000  from holding Korean Air Lines or generate 5.51% return on investment over 90 days.

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

Korean Air Lines  vs.  Next Entertainment World

Korean Air Lines

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Air may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Next Entertainment World

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Korean Air and Next Entertainment

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

The idea behind Korean Air Lines and Next Entertainment World 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.