Correlation Between Posco ICT and SBI Investment

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

By analyzing existing cross correlation between Posco ICT and SBI Investment KOREA, you can compare the effects of market volatilities on Posco ICT and SBI Investment 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 Posco ICT with a short position of SBI Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Posco ICT and SBI Investment.

Diversification Opportunities for Posco ICT and SBI Investment

0.21

Correlation Coefficient

Posco ICT  SBI Investment

Modest diversification

The 3 months correlation between Posco and SBI is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Posco ICT and SBI Investment KOREA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Investment KOREA and Posco ICT 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 Posco ICT are associated (or correlated) with SBI Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Investment KOREA has no effect on the direction of Posco ICT i.e., Posco ICT and SBI Investment go up and down completely randomly.

Pair Corralation between Posco ICT and SBI Investment

Assuming the 90 days trading horizon Posco ICT is expected to under-perform the SBI Investment. In addition to that, Posco ICT is 1.36 times more volatile than SBI Investment KOREA. It trades about -0.16 of its total potential returns per unit of risk. SBI Investment KOREA is currently generating about 0.0 per unit of volatility. If you would invest  73,900  in SBI Investment KOREA on September 4, 2024 and sell it today you would lose (1,400) from holding SBI Investment KOREA or give up 1.89% of portfolio value over 90 days.

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

Posco ICT  vs.  SBI Investment KOREA

Posco ICT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Posco ICT 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.

SBI Investment KOREA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Posco ICT and SBI Investment

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

The idea behind Posco ICT and SBI Investment KOREA 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.