Correlation Between Korea Refractories and KM

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

By analyzing existing cross correlation between Korea Refractories Co and KM Corporation, you can compare the effects of market volatilities on Korea Refractories and KM 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 Korea Refractories with a short position of KM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Refractories and KM.

Diversification Opportunities for Korea Refractories and KM

0.85

Correlation Coefficient

Korea Refractories  KM

Very poor diversification

The 3 months correlation between Korea and KM is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Korea Refractories Co and KM Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KM Corporation and Korea Refractories 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 Korea Refractories Co are associated (or correlated) with KM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KM Corporation has no effect on the direction of Korea Refractories i.e., Korea Refractories and KM go up and down completely randomly.

Pair Corralation between Korea Refractories and KM

Assuming the 90 days trading horizon Korea Refractories Co is expected to generate 0.8 times more return on investment than KM. However, Korea Refractories Co is 1.26 times less risky than KM. It trades about -0.05 of its potential returns per unit of risk. KM Corporation is currently generating about -0.07 per unit of risk. If you would invest  222,000  in Korea Refractories Co on September 12, 2024 and sell it today you would lose (13,000) from holding Korea Refractories Co or give up 5.86% of portfolio value over 90 days.

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

Korea Refractories Co  vs.  KM Corp.

Korea Refractories

Risk-Adjusted Performance

0 of 100

Very Weak

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

KM Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KM Corporation 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 Korea Refractories and KM

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

The idea behind Korea Refractories Co and KM Corporation 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.