Correlation Between KMH Hitech and Busan Industrial

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

By analyzing existing cross correlation between KMH Hitech Co and Busan Industrial Co, you can compare the effects of market volatilities on KMH Hitech and Busan Industrial 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 KMH Hitech with a short position of Busan Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of KMH Hitech and Busan Industrial.

Diversification Opportunities for KMH Hitech and Busan Industrial

0.01

Correlation Coefficient

KMH Hitech  Busan Industrial

Significant diversification

The 3 months correlation between KMH and Busan is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding KMH Hitech Co and Busan Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Busan Industrial and KMH Hitech 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 KMH Hitech Co are associated (or correlated) with Busan Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Busan Industrial has no effect on the direction of KMH Hitech i.e., KMH Hitech and Busan Industrial go up and down completely randomly.

Pair Corralation between KMH Hitech and Busan Industrial

Assuming the 90 days trading horizon KMH Hitech Co is expected to generate 0.96 times more return on investment than Busan Industrial. However, KMH Hitech Co is 1.05 times less risky than Busan Industrial. It trades about -0.01 of its potential returns per unit of risk. Busan Industrial Co is currently generating about -0.04 per unit of risk. If you would invest  173,000  in KMH Hitech Co on February 5, 2024 and sell it today you would lose (39,200) from holding KMH Hitech Co or give up 22.66% of portfolio value over 90 days.

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

KMH Hitech Co  vs.  Busan Industrial Co

KMH Hitech

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KMH Hitech Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KMH Hitech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Busan Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Busan Industrial Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with KMH Hitech and Busan Industrial

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

The idea behind KMH Hitech Co and Busan Industrial Co 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.