Correlation Between Shinsegae Food and Korean Reinsurance

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

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

Diversification Opportunities for Shinsegae Food and Korean Reinsurance

-0.8

Correlation Coefficient

Shinsegae Food  Korean Reinsurance

Pay attention - limited upside

The 3 months correlation between Shinsegae and Korean is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Shinsegae Food and Korean Reinsurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Reinsurance and Shinsegae Food 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 Shinsegae Food are associated (or correlated) with Korean Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Reinsurance has no effect on the direction of Shinsegae Food i.e., Shinsegae Food and Korean Reinsurance go up and down completely randomly.

Pair Corralation between Shinsegae Food and Korean Reinsurance

Assuming the 90 days trading horizon Shinsegae Food is expected to under-perform the Korean Reinsurance. In addition to that, Shinsegae Food is 1.01 times more volatile than Korean Reinsurance Co. It trades about -0.1 of its total potential returns per unit of risk. Korean Reinsurance Co is currently generating about 0.13 per unit of volatility. If you would invest  701,666  in Korean Reinsurance Co on September 22, 2024 and sell it today you would earn a total of  93,334  from holding Korean Reinsurance Co or generate 13.3% return on investment over 90 days.

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

Shinsegae Food  vs.  Korean Reinsurance Co

Shinsegae Food

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shinsegae Food has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Korean Reinsurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Reinsurance Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Reinsurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shinsegae Food and Korean Reinsurance

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

The idea behind Shinsegae Food and Korean Reinsurance 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.