Correlation Between Jeju Air and Korean Air

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

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

Diversification Opportunities for Jeju Air and Korean Air

0.45

Correlation Coefficient

Jeju Air  Korean Air

Very weak diversification

The 3 months correlation between Jeju and Korean is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Jeju Air Co and Korean Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Air Lines and Jeju Air 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 Jeju Air Co are associated (or correlated) with Korean Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Air Lines has no effect on the direction of Jeju Air i.e., Jeju Air and Korean Air go up and down completely randomly.

Pair Corralation between Jeju Air and Korean Air

Assuming the 90 days trading horizon Jeju Air Co is expected to under-perform the Korean Air. In addition to that, Jeju Air is 1.27 times more volatile than Korean Air Lines. It trades about -0.03 of its total potential returns per unit of risk. Korean Air Lines is currently generating about 0.06 per unit of volatility. If you would invest  2,250,000  in Korean Air Lines on September 24, 2024 and sell it today you would earn a total of  120,000  from holding Korean Air Lines or generate 5.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Jeju Air Co  vs.  Korean Air Lines

Jeju Air

Risk-Adjusted Performance

0 of 100

Very Weak

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

Korean Air Lines

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Air Lines are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Korean Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Jeju Air and Korean Air

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

The idea behind Jeju Air Co and Korean Air Lines 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.