Correlation Between Korean Reinsurance and Keyang Electric

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

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

Diversification Opportunities for Korean Reinsurance and Keyang Electric

-0.81

Correlation Coefficient

Korean Reinsurance  Keyang Electric

Pay attention - limited upside

The 3 months correlation between Korean and Keyang is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Korean Reinsurance Co and Keyang Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keyang Electric Machinery and Korean Reinsurance 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 Reinsurance Co are associated (or correlated) with Keyang Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keyang Electric Machinery has no effect on the direction of Korean Reinsurance i.e., Korean Reinsurance and Keyang Electric go up and down completely randomly.

Pair Corralation between Korean Reinsurance and Keyang Electric

Assuming the 90 days trading horizon Korean Reinsurance is expected to generate 1.89 times less return on investment than Keyang Electric. But when comparing it to its historical volatility, Korean Reinsurance Co is 1.99 times less risky than Keyang Electric. It trades about 0.1 of its potential returns per unit of risk. Keyang Electric Machinery is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  325,500  in Keyang Electric Machinery on September 25, 2024 and sell it today you would earn a total of  20,500  from holding Keyang Electric Machinery or generate 6.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Korean Reinsurance Co  vs.  Keyang Electric Machinery

Korean Reinsurance

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Reinsurance Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Reinsurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Keyang Electric Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Keyang Electric Machinery 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.

Pair Trading with Korean Reinsurance and Keyang Electric

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

The idea behind Korean Reinsurance Co and Keyang Electric Machinery 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.