Correlation Between POSCO Holdings and Korean Air

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

By analyzing existing cross correlation between POSCO Holdings and Korean Air Lines, you can compare the effects of market volatilities on POSCO Holdings and Korean Air 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 Korean Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of POSCO Holdings and Korean Air.

Diversification Opportunities for POSCO Holdings and Korean Air

-0.61

Correlation Coefficient

POSCO Holdings  Korean Air

Excellent diversification

The 3 months correlation between POSCO and Korean is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and Korean Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Air Lines 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 Korean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Air Lines has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and Korean Air go up and down completely randomly.

Pair Corralation between POSCO Holdings and Korean Air

Assuming the 90 days trading horizon POSCO Holdings is expected to under-perform the Korean Air. In addition to that, POSCO Holdings is 3.12 times more volatile than Korean Air Lines. It trades about -0.15 of its total potential returns per unit of risk. Korean Air Lines is currently generating about 0.01 per unit of volatility. If you would invest  2,290,000  in Korean Air Lines on September 12, 2024 and sell it today you would earn a total of  10,000  from holding Korean Air Lines or generate 0.44% return on investment over 90 days.

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

POSCO Holdings  vs.  Korean Air Lines

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Korean Air Lines

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Korean Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with POSCO Holdings and Korean Air

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

The idea behind POSCO Holdings and Korean Air Lines 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.