Correlation Between Korean Drug and Sangshin Electronics

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

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

Diversification Opportunities for Korean Drug and Sangshin Electronics

0.83

Correlation Coefficient

Korean Drug  Sangshin Electronics

Very poor diversification

The 3 months correlation between Korean and Sangshin is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Korean Drug Co and Sangshin Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sangshin Electronics and Korean Drug 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 Korean Drug Co are associated (or correlated) with Sangshin Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sangshin Electronics has no effect on the direction of Korean Drug i.e., Korean Drug and Sangshin Electronics go up and down completely randomly.

Pair Corralation between Korean Drug and Sangshin Electronics

Assuming the 90 days trading horizon Korean Drug Co is expected to under-perform the Sangshin Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Korean Drug Co is 2.01 times less risky than Sangshin Electronics. The stock trades about -0.05 of its potential returns per unit of risk. The Sangshin Electronics Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  316,000  in Sangshin Electronics Co on September 29, 2024 and sell it today you would lose (36,000) from holding Sangshin Electronics Co or give up 11.39% of portfolio value over 90 days.

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

Korean Drug Co  vs.  Sangshin Electronics Co

Korean Drug

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sangshin Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sangshin Electronics Co 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.

Pair Trading with Korean Drug and Sangshin Electronics

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

The idea behind Korean Drug Co and Sangshin Electronics Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.