Correlation Between Gyeongnam Steel and KB Financial

Can any of the company-specific risk be diversified away by investing in both Gyeongnam Steel and KB Financial 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 KB Financial 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 KB Financial Group, you can compare the effects of market volatilities on Gyeongnam Steel and KB Financial 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 KB Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gyeongnam Steel and KB Financial.

Diversification Opportunities for Gyeongnam Steel and KB Financial

-0.42

Correlation Coefficient

Gyeongnam Steel  KB Financial

Very good diversification

The 3 months correlation between Gyeongnam and 105560 is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Gyeongnam Steel Co and KB Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Financial Group 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 KB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB Financial Group has no effect on the direction of Gyeongnam Steel i.e., Gyeongnam Steel and KB Financial go up and down completely randomly.

Pair Corralation between Gyeongnam Steel and KB Financial

Assuming the 90 days trading horizon Gyeongnam Steel Co is expected to generate 2.15 times more return on investment than KB Financial. However, Gyeongnam Steel is 2.15 times more volatile than KB Financial Group. It trades about 0.17 of its potential returns per unit of risk. KB Financial Group is currently generating about 0.05 per unit of risk. If you would invest  288,500  in Gyeongnam Steel Co on September 28, 2024 and sell it today you would earn a total of  190,500  from holding Gyeongnam Steel Co or generate 66.03% 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.  KB Financial Group

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.

KB Financial Group

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Gyeongnam Steel and KB Financial

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

The idea behind Gyeongnam Steel Co and KB Financial Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.