Correlation Between Jeju Air and Namhwa Industrial

Can any of the company-specific risk be diversified away by investing in both Jeju Air and Namhwa Industrial 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 Namhwa Industrial 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 Namhwa Industrial Co, you can compare the effects of market volatilities on Jeju Air and Namhwa Industrial 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 Namhwa Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jeju Air and Namhwa Industrial.

Diversification Opportunities for Jeju Air and Namhwa Industrial

0.42

Correlation Coefficient

Jeju Air  Namhwa Industrial

Very weak diversification

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

Pair Corralation between Jeju Air and Namhwa Industrial

Assuming the 90 days trading horizon Jeju Air Co is expected to under-perform the Namhwa Industrial. In addition to that, Jeju Air is 1.33 times more volatile than Namhwa Industrial Co. It trades about -0.04 of its total potential returns per unit of risk. Namhwa Industrial Co is currently generating about 0.09 per unit of volatility. If you would invest  480,000  in Namhwa Industrial Co on September 20, 2024 and sell it today you would earn a total of  40,000  from holding Namhwa Industrial Co or generate 8.33% return on investment over 90 days.

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

Jeju Air Co  vs.  Namhwa Industrial Co

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.

Namhwa Industrial

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Namhwa Industrial Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Namhwa Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Jeju Air and Namhwa Industrial

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

The idea behind Jeju Air Co and Namhwa Industrial 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.