Correlation Between Kosdaq Composite and NeoPharm

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

Diversification Opportunities for Kosdaq Composite and NeoPharm

0.39
  Correlation Coefficient

Weak diversification

The 3 months correlation between Kosdaq and NeoPharm is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and NeoPharm LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NeoPharm LTD 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 NeoPharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NeoPharm LTD has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and NeoPharm go up and down completely randomly.
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Pair Corralation between Kosdaq Composite and NeoPharm

Assuming the 90 days trading horizon Kosdaq Composite Index is expected to under-perform the NeoPharm. But the index apears to be less risky and, when comparing its historical volatility, Kosdaq Composite Index is 1.67 times less risky than NeoPharm. The index trades about -0.05 of its potential returns per unit of risk. The NeoPharm LTD is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,120,000  in NeoPharm LTD on September 19, 2024 and sell it today you would earn a total of  80,000  from holding NeoPharm LTD or generate 7.14% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Kosdaq Composite Index  vs.  NeoPharm LTD

 Performance 
       Timeline  

Kosdaq Composite and NeoPharm Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Kosdaq Composite and NeoPharm

The main advantage of trading using opposite Kosdaq Composite and NeoPharm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kosdaq Composite position performs unexpectedly, NeoPharm 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 NeoPharm will offset losses from the drop in NeoPharm's long position.
The idea behind Kosdaq Composite Index and NeoPharm LTD 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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