Correlation Between Kosdaq Composite and Daehan Steel

Can any of the company-specific risk be diversified away by investing in both Kosdaq Composite and Daehan 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 Kosdaq Composite and Daehan Steel 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 Daehan Steel, you can compare the effects of market volatilities on Kosdaq Composite and Daehan 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 Kosdaq Composite with a short position of Daehan Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kosdaq Composite and Daehan Steel.

Diversification Opportunities for Kosdaq Composite and Daehan Steel

-0.68

Correlation Coefficient

Kosdaq Composite  Daehan Steel

Excellent diversification

The 3 months correlation between Kosdaq and Daehan is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and Daehan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daehan Steel 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 Daehan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daehan Steel has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and Daehan Steel go up and down completely randomly.

Pair Corralation between Kosdaq Composite and Daehan Steel

Assuming the 90 days trading horizon Kosdaq Composite Index is expected to under-perform the Daehan Steel. But the index apears to be less risky and, when comparing its historical volatility, Kosdaq Composite Index is 1.12 times less risky than Daehan Steel. The index trades about -0.09 of its potential returns per unit of risk. The Daehan Steel is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,296,000  in Daehan Steel on September 12, 2024 and sell it today you would earn a total of  284,000  from holding Daehan Steel or generate 21.91% return on investment over 90 days.

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

Kosdaq Composite Index  vs.  Daehan Steel

Pair Trading with Kosdaq Composite and Daehan Steel

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

The idea behind Kosdaq Composite Index and Daehan Steel 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.