Correlation Between Next Bt and Hanjin Transportation

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

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

Diversification Opportunities for Next Bt and Hanjin Transportation

0.6

Correlation Coefficient

Next Bt  Hanjin Transportation

Poor diversification

The 3 months correlation between Next and Hanjin is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Next Bt Co and Hanjin Transportation Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanjin Transportation and Next Bt 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 Next Bt Co are associated (or correlated) with Hanjin Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanjin Transportation has no effect on the direction of Next Bt i.e., Next Bt and Hanjin Transportation go up and down completely randomly.

Pair Corralation between Next Bt and Hanjin Transportation

Assuming the 90 days trading horizon Next Bt Co is expected to under-perform the Hanjin Transportation. In addition to that, Next Bt is 3.01 times more volatile than Hanjin Transportation Co. It trades about -0.08 of its total potential returns per unit of risk. Hanjin Transportation Co is currently generating about -0.04 per unit of volatility. If you would invest  2,115,000  in Hanjin Transportation Co on September 18, 2024 and sell it today you would lose (209,000) from holding Hanjin Transportation Co or give up 9.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.75%
Values	Daily Returns

Next Bt Co  vs.  Hanjin Transportation Co

Next Bt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Next Bt Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Hanjin Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hanjin Transportation Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hanjin Transportation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Next Bt and Hanjin Transportation

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

The idea behind Next Bt Co and Hanjin Transportation 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 Stocks Directory module to find actively traded stocks across global markets.