Correlation Between Iljin Materials and RF Materials

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

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

Diversification Opportunities for Iljin Materials and RF Materials

0.75

Correlation Coefficient

Iljin Materials  RF Materials

Poor diversification

The 3 months correlation between Iljin and 327260 is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Iljin Materials Co and RF Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RF Materials and Iljin Materials 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 Iljin Materials Co are associated (or correlated) with RF Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RF Materials has no effect on the direction of Iljin Materials i.e., Iljin Materials and RF Materials go up and down completely randomly.

Pair Corralation between Iljin Materials and RF Materials

Assuming the 90 days trading horizon Iljin Materials Co is expected to under-perform the RF Materials. But the stock apears to be less risky and, when comparing its historical volatility, Iljin Materials Co is 1.24 times less risky than RF Materials. The stock trades about -0.23 of its potential returns per unit of risk. The RF Materials Co is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  650,000  in RF Materials Co on September 16, 2024 and sell it today you would lose (170,000) from holding RF Materials Co or give up 26.15% of portfolio value over 90 days.

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

Iljin Materials Co  vs.  RF Materials Co

Iljin Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iljin Materials 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.

RF Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RF Materials 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 Iljin Materials and RF Materials

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

The idea behind Iljin Materials Co and RF Materials 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.