Correlation Between Korea Alcohol and Gyeongnam Steel

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

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

Diversification Opportunities for Korea Alcohol and Gyeongnam Steel

-0.75

Correlation Coefficient

Korea Alcohol  Gyeongnam Steel

Pay attention - limited upside

The 3 months correlation between Korea and Gyeongnam is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Korea Alcohol Industrial and Gyeongnam Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gyeongnam Steel and Korea Alcohol 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 Alcohol Industrial are associated (or correlated) with Gyeongnam Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gyeongnam Steel has no effect on the direction of Korea Alcohol i.e., Korea Alcohol and Gyeongnam Steel go up and down completely randomly.

Pair Corralation between Korea Alcohol and Gyeongnam Steel

Assuming the 90 days trading horizon Korea Alcohol Industrial is expected to under-perform the Gyeongnam Steel. But the stock apears to be less risky and, when comparing its historical volatility, Korea Alcohol Industrial is 4.9 times less risky than Gyeongnam Steel. The stock trades about -0.12 of its potential returns per unit of risk. The Gyeongnam Steel Co is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  307,500  in Gyeongnam Steel Co on September 22, 2024 and sell it today you would earn a total of  164,500  from holding Gyeongnam Steel Co or generate 53.5% return on investment over 90 days.

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

Korea Alcohol Industrial  vs.  Gyeongnam Steel Co

Korea Alcohol Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Alcohol Industrial 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.

Gyeongnam Steel

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gyeongnam Steel Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gyeongnam Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Alcohol and Gyeongnam Steel

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

The idea behind Korea Alcohol Industrial and Gyeongnam Steel 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.