Correlation Between Korea Investment and Korea Environment

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

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

Diversification Opportunities for Korea Investment and Korea Environment

0.67

Correlation Coefficient

Korea Investment  Korea Environment

Poor diversification

The 3 months correlation between Korea and Korea is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Korea Investment Holdings and Korea Environment Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Environment and Korea Investment 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 Korea Investment Holdings 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 Korea Investment i.e., Korea Investment and Korea Environment go up and down completely randomly.

Pair Corralation between Korea Investment and Korea Environment

Assuming the 90 days trading horizon Korea Investment Holdings is expected to under-perform the Korea Environment. In addition to that, Korea Investment is 2.58 times more volatile than Korea Environment Technology. It trades about -0.06 of its total potential returns per unit of risk. Korea Environment Technology is currently generating about 0.03 per unit of volatility. If you would invest  896,000  in Korea Environment Technology on September 23, 2024 and sell it today you would earn a total of  4,000  from holding Korea Environment Technology or generate 0.45% return on investment over 90 days.

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

Korea Investment Holdings  vs.  Korea Environment Technology

Korea Investment Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Investment Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Korea Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 Korea Investment and Korea Environment

The main advantage of trading using opposite Korea Investment and Korea Environment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korea Investment 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 Korea Investment Holdings 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.