Correlation Between PJ Metal and Gyeongnam Steel

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

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

Diversification Opportunities for PJ Metal and Gyeongnam Steel

0.36

Correlation Coefficient

PJ Metal  Gyeongnam Steel

Weak diversification

The 3 months correlation between 128660 and Gyeongnam is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding PJ Metal Co and Gyeongnam Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gyeongnam Steel and PJ Metal 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 PJ Metal Co are associated (or correlated) with Gyeongnam Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gyeongnam Steel has no effect on the direction of PJ Metal i.e., PJ Metal and Gyeongnam Steel go up and down completely randomly.

Pair Corralation between PJ Metal and Gyeongnam Steel

Assuming the 90 days trading horizon PJ Metal Co is expected to generate 2.19 times more return on investment than Gyeongnam Steel. However, PJ Metal is 2.19 times more volatile than Gyeongnam Steel Co. It trades about 0.16 of its potential returns per unit of risk. Gyeongnam Steel Co is currently generating about -0.02 per unit of risk. If you would invest  345,500  in PJ Metal Co on January 29, 2024 and sell it today you would earn a total of  63,500  from holding PJ Metal Co or generate 18.38% return on investment over 90 days.

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

PJ Metal Co  vs.  Gyeongnam Steel Co

PJ Metal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PJ Metal Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PJ Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Gyeongnam Steel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gyeongnam Steel Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gyeongnam Steel may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with PJ Metal and Gyeongnam Steel

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

The idea behind PJ Metal Co and Gyeongnam Steel 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.