Correlation Between Haitai Confectionery and Korean Drug

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

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

Diversification Opportunities for Haitai Confectionery and Korean Drug

0.08

Correlation Coefficient

Haitai Confectionery  Korean Drug

Significant diversification

The 3 months correlation between Haitai and Korean is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Haitai Confectionery Foods and Korean Drug Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Drug and Haitai Confectionery 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 Haitai Confectionery Foods are associated (or correlated) with Korean Drug. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Drug has no effect on the direction of Haitai Confectionery i.e., Haitai Confectionery and Korean Drug go up and down completely randomly.

Pair Corralation between Haitai Confectionery and Korean Drug

Assuming the 90 days trading horizon Haitai Confectionery Foods is expected to generate 1.42 times more return on investment than Korean Drug. However, Haitai Confectionery is 1.42 times more volatile than Korean Drug Co. It trades about 0.06 of its potential returns per unit of risk. Korean Drug Co is currently generating about -0.16 per unit of risk. If you would invest  559,000  in Haitai Confectionery Foods on September 5, 2024 and sell it today you would earn a total of  34,000  from holding Haitai Confectionery Foods or generate 6.08% return on investment over 90 days.

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

Haitai Confectionery Foods  vs.  Korean Drug Co

Haitai Confectionery

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Haitai Confectionery Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Haitai Confectionery may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Korean Drug

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korean Drug 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.

Pair Trading with Haitai Confectionery and Korean Drug

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

The idea behind Haitai Confectionery Foods and Korean Drug 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.