Correlation Between Gyeongnam Steel and KMH Hitech

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

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

Diversification Opportunities for Gyeongnam Steel and KMH Hitech

-0.53

Correlation Coefficient

Gyeongnam Steel  KMH Hitech

Excellent diversification

The 3 months correlation between Gyeongnam and KMH is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Gyeongnam Steel Co and KMH Hitech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KMH Hitech and Gyeongnam Steel 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 Gyeongnam Steel Co are associated (or correlated) with KMH Hitech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KMH Hitech has no effect on the direction of Gyeongnam Steel i.e., Gyeongnam Steel and KMH Hitech go up and down completely randomly.

Pair Corralation between Gyeongnam Steel and KMH Hitech

Assuming the 90 days trading horizon Gyeongnam Steel Co is expected to generate 2.82 times more return on investment than KMH Hitech. However, Gyeongnam Steel is 2.82 times more volatile than KMH Hitech Co. It trades about 0.17 of its potential returns per unit of risk. KMH Hitech Co is currently generating about -0.07 per unit of risk. If you would invest  287,500  in Gyeongnam Steel Co on September 23, 2024 and sell it today you would earn a total of  184,500  from holding Gyeongnam Steel Co or generate 64.17% return on investment over 90 days.

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

Gyeongnam Steel Co  vs.  KMH Hitech Co

Gyeongnam Steel

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gyeongnam Steel Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gyeongnam Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

KMH Hitech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KMH Hitech Co 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.

Pair Trading with Gyeongnam Steel and KMH Hitech

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

The idea behind Gyeongnam Steel Co and KMH Hitech 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.