Correlation Between Jeju Air and Jin Air

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

Diversification Opportunities for Jeju Air and Jin Air

0.85

Correlation Coefficient

Jeju Air  Jin Air

Very poor diversification

The 3 months correlation between Jeju and Jin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Jeju Air Co and Jin Air Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jin Air 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 Jin Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jin Air has no effect on the direction of Jeju Air i.e., Jeju Air and Jin Air go up and down completely randomly.

Pair Corralation between Jeju Air and Jin Air

Assuming the 90 days trading horizon Jeju Air Co is expected to under-perform the Jin Air. But the stock apears to be less risky and, when comparing its historical volatility, Jeju Air Co is 1.4 times less risky than Jin Air. The stock trades about -0.02 of its potential returns per unit of risk. The Jin Air Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,020,000  in Jin Air Co on September 12, 2024 and sell it today you would earn a total of  44,000  from holding Jin Air Co or generate 4.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.31%
Values	Daily Returns

Jeju Air Co  vs.  Jin Air 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.

Jin Air

Risk-Adjusted Performance

3 of 100

Weak

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

Pair Trading with Jeju Air and Jin Air

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

The idea behind Jeju Air Co and Jin Air 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.