Correlation Between Hanwha Aerospace and KCI

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

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

Diversification Opportunities for Hanwha Aerospace and KCI

-0.29

Correlation Coefficient

Hanwha Aerospace  KCI

Very good diversification

The 3 months correlation between Hanwha and KCI is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Hanwha Aerospace Co and KCI Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KCI Limited and Hanwha Aerospace 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 Hanwha Aerospace Co are associated (or correlated) with KCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KCI Limited has no effect on the direction of Hanwha Aerospace i.e., Hanwha Aerospace and KCI go up and down completely randomly.

Pair Corralation between Hanwha Aerospace and KCI

Assuming the 90 days trading horizon Hanwha Aerospace Co is expected to generate 3.06 times more return on investment than KCI. However, Hanwha Aerospace is 3.06 times more volatile than KCI Limited. It trades about 0.01 of its potential returns per unit of risk. KCI Limited is currently generating about -0.11 per unit of risk. If you would invest  32,212,200  in Hanwha Aerospace Co on August 31, 2024 and sell it today you would lose (962,200) from holding Hanwha Aerospace Co or give up 2.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Hanwha Aerospace Co  vs.  KCI Limited

Hanwha Aerospace

Risk-Adjusted Performance

0 of 100

Weak

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

KCI Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KCI Limited 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 Hanwha Aerospace and KCI

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

The idea behind Hanwha Aerospace Co and KCI Limited 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 Transaction History module to view history of all your transactions and understand their impact on performance.