Correlation Between Korea Information and ChipsMedia

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

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

Diversification Opportunities for Korea Information and ChipsMedia

0.76

Correlation Coefficient

Korea Information  ChipsMedia

Poor diversification

The 3 months correlation between Korea and ChipsMedia is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Korea Information Communicatio and ChipsMedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChipsMedia and Korea Information 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 Information Communications are associated (or correlated) with ChipsMedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChipsMedia has no effect on the direction of Korea Information i.e., Korea Information and ChipsMedia go up and down completely randomly.

Pair Corralation between Korea Information and ChipsMedia

Assuming the 90 days trading horizon Korea Information Communications is expected to generate 0.34 times more return on investment than ChipsMedia. However, Korea Information Communications is 2.92 times less risky than ChipsMedia. It trades about -0.04 of its potential returns per unit of risk. ChipsMedia is currently generating about -0.03 per unit of risk. If you would invest  822,000  in Korea Information Communications on September 12, 2024 and sell it today you would lose (27,000) from holding Korea Information Communications or give up 3.28% of portfolio value over 90 days.

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

Korea Information Communicatio  vs.  ChipsMedia

Korea Information

Risk-Adjusted Performance

0 of 100

Very Weak

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

ChipsMedia

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Korea Information and ChipsMedia

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

The idea behind Korea Information Communications and ChipsMedia 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.