Correlation Between Youl Chon and Korean Air

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

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

Diversification Opportunities for Youl Chon and Korean Air

0.34

Correlation Coefficient

Youl Chon  Korean Air

Weak diversification

The 3 months correlation between Youl and Korean is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Youl Chon Chemical 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 Youl Chon 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 Youl Chon Chemical 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 Youl Chon i.e., Youl Chon and Korean Air go up and down completely randomly.

Pair Corralation between Youl Chon and Korean Air

Assuming the 90 days trading horizon Youl Chon is expected to generate 1.03 times less return on investment than Korean Air. In addition to that, Youl Chon is 4.47 times more volatile than Korean Air Lines. It trades about 0.03 of its total potential returns per unit of risk. Korean Air Lines is currently generating about 0.14 per unit of volatility. If you would invest  2,250,000  in Korean Air Lines on September 5, 2024 and sell it today you would earn a total of  205,000  from holding Korean Air Lines or generate 9.11% return on investment over 90 days.

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

Youl Chon Chemical  vs.  Korean Air Lines

Youl Chon Chemical

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Youl Chon Chemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Youl Chon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Korean Air Lines

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 14 (%) 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.

Pair Trading with Youl Chon and Korean Air

The main advantage of trading using opposite Youl Chon and Korean Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Youl Chon 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 Youl Chon Chemical 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.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.