Correlation Between Kosdaq Composite and GS Engineering

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

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

Diversification Opportunities for Kosdaq Composite and GS Engineering

0.26

Correlation Coefficient

Kosdaq Composite  GS Engineering

Modest diversification

The 3 months correlation between Kosdaq and 006360 is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and GS Engineering Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GS Engineering Const and Kosdaq Composite 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 Kosdaq Composite Index are associated (or correlated) with GS Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GS Engineering Const has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and GS Engineering go up and down completely randomly.

Pair Corralation between Kosdaq Composite and GS Engineering

Assuming the 90 days trading horizon Kosdaq Composite Index is expected to under-perform the GS Engineering. But the index apears to be less risky and, when comparing its historical volatility, Kosdaq Composite Index is 1.48 times less risky than GS Engineering. The index trades about -0.13 of its potential returns per unit of risk. The GS Engineering Construction is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,040,000  in GS Engineering Construction on September 1, 2024 and sell it today you would lose (92,000) from holding GS Engineering Construction or give up 4.51% of portfolio value over 90 days.

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

Kosdaq Composite Index  vs.  GS Engineering Construction

Pair Trading with Kosdaq Composite and GS Engineering

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

The idea behind Kosdaq Composite Index and GS 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.