Correlation Between Kmw and Korea Environment

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

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

Diversification Opportunities for Kmw and Korea Environment

0.71

Correlation Coefficient

Kmw  Korea Environment

Poor diversification

The 3 months correlation between Kmw and Korea is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Kmw Inc and Korea Environment Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Environment and Kmw 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 Kmw Inc are associated (or correlated) with Korea Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Environment has no effect on the direction of Kmw i.e., Kmw and Korea Environment go up and down completely randomly.

Pair Corralation between Kmw and Korea Environment

Assuming the 90 days trading horizon Kmw is expected to generate 1.97 times less return on investment than Korea Environment. In addition to that, Kmw is 1.49 times more volatile than Korea Environment Technology. It trades about 0.05 of its total potential returns per unit of risk. Korea Environment Technology is currently generating about 0.14 per unit of volatility. If you would invest  742,000  in Korea Environment Technology on September 22, 2024 and sell it today you would earn a total of  158,000  from holding Korea Environment Technology or generate 21.29% return on investment over 90 days.

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

Kmw Inc  vs.  Korea Environment Technology

Kmw Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kmw Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kmw may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Korea Environment

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Environment Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Environment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kmw and Korea Environment

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

The idea behind Kmw Inc and Korea Environment Technology 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.