Correlation Between KCI and Busan Ind

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

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

Diversification Opportunities for KCI and Busan Ind

-0.52

Correlation Coefficient

KCI  Busan Ind

Excellent diversification

The 3 months correlation between KCI and Busan is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding KCI Limited and Busan Ind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Busan Ind and KCI 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 KCI Limited are associated (or correlated) with Busan Ind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Busan Ind has no effect on the direction of KCI i.e., KCI and Busan Ind go up and down completely randomly.

Pair Corralation between KCI and Busan Ind

Assuming the 90 days trading horizon KCI Limited is expected to under-perform the Busan Ind. But the stock apears to be less risky and, when comparing its historical volatility, KCI Limited is 4.17 times less risky than Busan Ind. The stock trades about -0.1 of its potential returns per unit of risk. The Busan Ind is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,190,000  in Busan Ind on September 2, 2024 and sell it today you would earn a total of  950,000  from holding Busan Ind or generate 18.3% return on investment over 90 days.

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

KCI Limited  vs.  Busan Ind

KCI Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KCI Limited 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.

Busan Ind

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Busan Ind are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Busan Ind sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KCI and Busan Ind

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

The idea behind KCI Limited and Busan Ind 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.