Correlation Between Namhwa Industrial and Han Kook

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

By analyzing existing cross correlation between Namhwa Industrial Co and Han Kook Capital, you can compare the effects of market volatilities on Namhwa Industrial and Han Kook 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 Namhwa Industrial with a short position of Han Kook. Check out your portfolio center. Please also check ongoing floating volatility patterns of Namhwa Industrial and Han Kook.

Diversification Opportunities for Namhwa Industrial and Han Kook

-0.69

Correlation Coefficient

Namhwa Industrial  Han Kook

Excellent diversification

The 3 months correlation between Namhwa and Han is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Namhwa Industrial Co and Han Kook Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Han Kook Capital and Namhwa Industrial 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 Namhwa Industrial Co are associated (or correlated) with Han Kook. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Han Kook Capital has no effect on the direction of Namhwa Industrial i.e., Namhwa Industrial and Han Kook go up and down completely randomly.

Pair Corralation between Namhwa Industrial and Han Kook

Assuming the 90 days trading horizon Namhwa Industrial Co is expected to under-perform the Han Kook. But the stock apears to be less risky and, when comparing its historical volatility, Namhwa Industrial Co is 1.02 times less risky than Han Kook. The stock trades about -0.05 of its potential returns per unit of risk. The Han Kook Capital is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  71,410  in Han Kook Capital on September 14, 2024 and sell it today you would lose (16,010) from holding Han Kook Capital or give up 22.42% of portfolio value over 90 days.

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

Namhwa Industrial Co  vs.  Han Kook Capital

Namhwa Industrial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Namhwa Industrial Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Namhwa Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Han Kook Capital

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Namhwa Industrial and Han Kook

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

The idea behind Namhwa Industrial Co and Han Kook Capital 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.