Correlation Between Sung Bo and Kosdaq Composite

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

By analyzing existing cross correlation between Sung Bo Chemicals and Kosdaq Composite Index, you can compare the effects of market volatilities on Sung Bo and Kosdaq Composite 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 Sung Bo with a short position of Kosdaq Composite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sung Bo and Kosdaq Composite.

Diversification Opportunities for Sung Bo and Kosdaq Composite

0.15

Correlation Coefficient

Sung Bo  Kosdaq Composite

Average diversification

The 3 months correlation between Sung and Kosdaq is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Sung Bo Chemicals and Kosdaq Composite Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kosdaq Composite Index and Sung Bo 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 Sung Bo Chemicals are associated (or correlated) with Kosdaq Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kosdaq Composite Index has no effect on the direction of Sung Bo i.e., Sung Bo and Kosdaq Composite go up and down completely randomly.

Pair Corralation between Sung Bo and Kosdaq Composite

Assuming the 90 days trading horizon Sung Bo Chemicals is expected to generate 0.5 times more return on investment than Kosdaq Composite. However, Sung Bo Chemicals is 2.01 times less risky than Kosdaq Composite. It trades about -0.1 of its potential returns per unit of risk. Kosdaq Composite Index is currently generating about -0.12 per unit of risk. If you would invest  255,500  in Sung Bo Chemicals on January 10, 2025 and sell it today you would lose (11,500) from holding Sung Bo Chemicals or give up 4.5% of portfolio value over 90 days.

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

Sung Bo Chemicals  vs.  Kosdaq Composite Index

Pair Trading with Sung Bo and Kosdaq Composite

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

The idea behind Sung Bo Chemicals and Kosdaq Composite Index 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..