Correlation Between Jeju Beer and Gyeongnam Steel

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

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

Diversification Opportunities for Jeju Beer and Gyeongnam Steel

0.28

Correlation Coefficient

Jeju Beer  Gyeongnam Steel

Modest diversification

The 3 months correlation between Jeju and Gyeongnam is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Jeju Beer Co and Gyeongnam Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gyeongnam Steel and Jeju Beer 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 Beer Co are associated (or correlated) with Gyeongnam Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gyeongnam Steel has no effect on the direction of Jeju Beer i.e., Jeju Beer and Gyeongnam Steel go up and down completely randomly.

Pair Corralation between Jeju Beer and Gyeongnam Steel

Assuming the 90 days trading horizon Jeju Beer Co is expected to generate 2.91 times more return on investment than Gyeongnam Steel. However, Jeju Beer is 2.91 times more volatile than Gyeongnam Steel Co. It trades about 0.04 of its potential returns per unit of risk. Gyeongnam Steel Co is currently generating about 0.03 per unit of risk. If you would invest  309,500  in Jeju Beer Co on August 31, 2024 and sell it today you would earn a total of  15,500  from holding Jeju Beer Co or generate 5.01% return on investment over 90 days.

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

Jeju Beer Co  vs.  Gyeongnam Steel Co

Jeju Beer

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jeju Beer Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jeju Beer may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Gyeongnam Steel

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gyeongnam Steel Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Gyeongnam Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Jeju Beer and Gyeongnam Steel

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

The idea behind Jeju Beer Co and Gyeongnam Steel 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.