Correlation Between KT and Cogent Communications

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

By analyzing existing cross correlation between KT Corporation and Cogent Communications Group, you can compare the effects of market volatilities on KT and Cogent Communications 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 KT with a short position of Cogent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of KT and Cogent Communications.

Diversification Opportunities for KT and Cogent Communications

0.58

Correlation Coefficient

KT  Cogent Communications

Very weak diversification

The 3 months correlation between KT and Cogent is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding KT Corp. and Cogent Communications Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent Communications and KT 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 KT Corporation are associated (or correlated) with Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of KT i.e., KT and Cogent Communications go up and down completely randomly.

Pair Corralation between KT and Cogent Communications

Allowing for the 90-day total investment horizon KT Corporation is expected to generate 1.56 times more return on investment than Cogent Communications. However, KT is 1.56 times more volatile than Cogent Communications Group. It trades about 0.26 of its potential returns per unit of risk. Cogent Communications Group is currently generating about 0.07 per unit of risk. If you would invest  1,581  in KT Corporation on August 31, 2024 and sell it today you would earn a total of  248.00  from holding KT Corporation or generate 15.69% return on investment over 90 days.

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

KT Corp.  vs.  Cogent Communications Group

KT Corporation

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KT Corporation are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, KT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Cogent Communications

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cogent Communications Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Cogent Communications demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KT and Cogent Communications

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

The idea behind KT Corporation and Cogent Communications Group 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.