Correlation Between Formetal and Hyundai Engineering

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

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

Diversification Opportunities for Formetal and Hyundai Engineering

-0.31

Correlation Coefficient

Formetal  Hyundai Engineering

Very good diversification

The 3 months correlation between Formetal and Hyundai is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Formetal Co and Hyundai Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Engineering and Formetal 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 Formetal Co are associated (or correlated) with Hyundai Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Engineering has no effect on the direction of Formetal i.e., Formetal and Hyundai Engineering go up and down completely randomly.

Pair Corralation between Formetal and Hyundai Engineering

Assuming the 90 days trading horizon Formetal Co is expected to generate 2.06 times more return on investment than Hyundai Engineering. However, Formetal is 2.06 times more volatile than Hyundai Engineering Construction. It trades about 0.23 of its potential returns per unit of risk. Hyundai Engineering Construction is currently generating about -0.17 per unit of risk. If you would invest  267,500  in Formetal Co on September 14, 2024 and sell it today you would earn a total of  71,000  from holding Formetal Co or generate 26.54% return on investment over 90 days.

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

Formetal Co  vs.  Hyundai Engineering Constructi

Formetal

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Formetal Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Formetal sustained solid returns over the last few months and may actually be approaching a breakup point.

Hyundai Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Engineering Construction 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 Formetal and Hyundai Engineering

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

The idea behind Formetal Co and Hyundai Engineering Construction 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.