Correlation Between Hanil Chemical and Hyundai Steel

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

By analyzing existing cross correlation between Hanil Chemical Ind and Hyundai Steel, you can compare the effects of market volatilities on Hanil Chemical and Hyundai Steel 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 Hanil Chemical with a short position of Hyundai Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanil Chemical and Hyundai Steel.

Diversification Opportunities for Hanil Chemical and Hyundai Steel

0.82

Correlation Coefficient

Hanil Chemical  Hyundai Steel

Very poor diversification

The 3 months correlation between Hanil and Hyundai is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hanil Chemical Ind and Hyundai Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Steel and Hanil Chemical 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 Hanil Chemical Ind are associated (or correlated) with Hyundai Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Steel has no effect on the direction of Hanil Chemical i.e., Hanil Chemical and Hyundai Steel go up and down completely randomly.

Pair Corralation between Hanil Chemical and Hyundai Steel

Assuming the 90 days trading horizon Hanil Chemical Ind is expected to generate 0.69 times more return on investment than Hyundai Steel. However, Hanil Chemical Ind is 1.45 times less risky than Hyundai Steel. It trades about -0.03 of its potential returns per unit of risk. Hyundai Steel is currently generating about -0.06 per unit of risk. If you would invest  1,225,000  in Hanil Chemical Ind on September 22, 2024 and sell it today you would lose (58,000) from holding Hanil Chemical Ind or give up 4.73% of portfolio value over 90 days.

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

Hanil Chemical Ind  vs.  Hyundai Steel

Hanil Chemical Ind

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hyundai Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Steel 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 Hanil Chemical and Hyundai Steel

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

The idea behind Hanil Chemical Ind and Hyundai Steel 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.