Correlation Between Incar Financial and SBI Investment

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

By analyzing existing cross correlation between Incar Financial Service and SBI Investment KOREA, you can compare the effects of market volatilities on Incar Financial and SBI Investment 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 Incar Financial with a short position of SBI Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Incar Financial and SBI Investment.

Diversification Opportunities for Incar Financial and SBI Investment

0.24

Correlation Coefficient

Incar Financial  SBI Investment

Modest diversification

The 3 months correlation between Incar and SBI is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Incar Financial Service and SBI Investment KOREA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Investment KOREA and Incar Financial 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 Incar Financial Service are associated (or correlated) with SBI Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Investment KOREA has no effect on the direction of Incar Financial i.e., Incar Financial and SBI Investment go up and down completely randomly.

Pair Corralation between Incar Financial and SBI Investment

Assuming the 90 days trading horizon Incar Financial is expected to generate 1.43 times less return on investment than SBI Investment. But when comparing it to its historical volatility, Incar Financial Service is 1.63 times less risky than SBI Investment. It trades about 0.1 of its potential returns per unit of risk. SBI Investment KOREA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  74,200  in SBI Investment KOREA on September 15, 2024 and sell it today you would earn a total of  5,800  from holding SBI Investment KOREA or generate 7.82% return on investment over 90 days.

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

Incar Financial Service  vs.  SBI Investment KOREA

Incar Financial Service

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Incar Financial Service are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Incar Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

SBI Investment KOREA

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Incar Financial and SBI Investment

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

The idea behind Incar Financial Service and SBI Investment KOREA 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.