Correlation Between POSCO Holdings and MGP Ingredients

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

By analyzing existing cross correlation between POSCO Holdings and MGP Ingredients, you can compare the effects of market volatilities on POSCO Holdings and MGP Ingredients 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 POSCO Holdings with a short position of MGP Ingredients. Check out your portfolio center. Please also check ongoing floating volatility patterns of POSCO Holdings and MGP Ingredients.

Diversification Opportunities for POSCO Holdings and MGP Ingredients

0.87

Correlation Coefficient

POSCO Holdings  MGP Ingredients

Very poor diversification

The 3 months correlation between POSCO and MGP is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and MGP Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGP Ingredients and POSCO Holdings 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 POSCO Holdings are associated (or correlated) with MGP Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGP Ingredients has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and MGP Ingredients go up and down completely randomly.

Pair Corralation between POSCO Holdings and MGP Ingredients

Assuming the 90 days horizon POSCO Holdings is expected to under-perform the MGP Ingredients. In addition to that, POSCO Holdings is 1.4 times more volatile than MGP Ingredients. It trades about -0.25 of its total potential returns per unit of risk. MGP Ingredients is currently generating about -0.2 per unit of volatility. If you would invest  4,420  in MGP Ingredients on September 22, 2024 and sell it today you would lose (420.00) from holding MGP Ingredients or give up 9.5% of portfolio value over 90 days.

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

POSCO Holdings  vs.  MGP Ingredients

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

MGP Ingredients

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGP Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with POSCO Holdings and MGP Ingredients

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

The idea behind POSCO Holdings and MGP Ingredients 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.