Correlation Between Naver and Heerim Architects

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

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

Diversification Opportunities for Naver and Heerim Architects

0.71

Correlation Coefficient

Naver  Heerim Architects

Poor diversification

The 3 months correlation between Naver and Heerim is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Naver and Heerim Architects Planners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heerim Architects and Naver 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 Naver are associated (or correlated) with Heerim Architects. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heerim Architects has no effect on the direction of Naver i.e., Naver and Heerim Architects go up and down completely randomly.

Pair Corralation between Naver and Heerim Architects

Assuming the 90 days trading horizon Naver is expected to under-perform the Heerim Architects. But the stock apears to be less risky and, when comparing its historical volatility, Naver is 1.17 times less risky than Heerim Architects. The stock trades about -0.2 of its potential returns per unit of risk. The Heerim Architects Planners is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  675,000  in Heerim Architects Planners on February 1, 2024 and sell it today you would lose (31,000) from holding Heerim Architects Planners or give up 4.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Naver  vs.  Heerim Architects Planners

Naver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Naver 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.

Heerim Architects

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heerim Architects Planners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Heerim Architects is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Naver and Heerim Architects

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

The idea behind Naver and Heerim Architects Planners 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.