Correlation Between Namhae Chemical and Namhwa Industrial

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

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

Diversification Opportunities for Namhae Chemical and Namhwa Industrial

-0.44

Correlation Coefficient

Namhae Chemical  Namhwa Industrial

Very good diversification

The 3 months correlation between Namhae and Namhwa is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Namhae Chemical and Namhwa Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Namhwa Industrial and Namhae Chemical 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 Namhae Chemical are associated (or correlated) with Namhwa Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Namhwa Industrial has no effect on the direction of Namhae Chemical i.e., Namhae Chemical and Namhwa Industrial go up and down completely randomly.

Pair Corralation between Namhae Chemical and Namhwa Industrial

Assuming the 90 days trading horizon Namhae Chemical is expected to under-perform the Namhwa Industrial. But the stock apears to be less risky and, when comparing its historical volatility, Namhae Chemical is 1.64 times less risky than Namhwa Industrial. The stock trades about -0.06 of its potential returns per unit of risk. The Namhwa Industrial Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  480,000  in Namhwa Industrial Co on September 12, 2024 and sell it today you would earn a total of  56,000  from holding Namhwa Industrial Co or generate 11.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Namhae Chemical  vs.  Namhwa Industrial Co

Namhae Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Namhwa Industrial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Namhwa Industrial Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Namhwa Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Namhae Chemical and Namhwa Industrial

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

The idea behind Namhae Chemical and Namhwa Industrial 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.