Correlation Between Hyundai and Western Sierra

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

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

Diversification Opportunities for Hyundai and Western Sierra

0.82

Correlation Coefficient

Hyundai  Western Sierra

Very poor diversification

The 3 months correlation between Hyundai and Western is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hyundai Motor Co and Western Sierra Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Sierra Mining and Hyundai 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 Hyundai Motor Co are associated (or correlated) with Western Sierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Sierra Mining has no effect on the direction of Hyundai i.e., Hyundai and Western Sierra go up and down completely randomly.

Pair Corralation between Hyundai and Western Sierra

Assuming the 90 days horizon Hyundai is expected to generate 1055.92 times less return on investment than Western Sierra. But when comparing it to its historical volatility, Hyundai Motor Co is 61.86 times less risky than Western Sierra. It trades about 0.01 of its potential returns per unit of risk. Western Sierra Mining is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.22  in Western Sierra Mining on September 3, 2024 and sell it today you would earn a total of  0.46  from holding Western Sierra Mining or generate 209.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

Hyundai Motor Co  vs.  Western Sierra Mining

Hyundai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Western Sierra Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Sierra Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Hyundai and Western Sierra

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

The idea behind Hyundai Motor Co and Western Sierra Mining 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.