Correlation Between SK Hynix and Microfriend

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

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

Diversification Opportunities for SK Hynix and Microfriend

0.94

Correlation Coefficient

SK Hynix  Microfriend

Almost no diversification

The 3 months correlation between 000660 and Microfriend is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SK Hynix and Microfriend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microfriend and SK Hynix 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 SK Hynix are associated (or correlated) with Microfriend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microfriend has no effect on the direction of SK Hynix i.e., SK Hynix and Microfriend go up and down completely randomly.

Pair Corralation between SK Hynix and Microfriend

Assuming the 90 days trading horizon SK Hynix is expected to generate 3.53 times less return on investment than Microfriend. But when comparing it to its historical volatility, SK Hynix is 1.75 times less risky than Microfriend. It trades about 0.09 of its potential returns per unit of risk. Microfriend is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  338,000  in Microfriend on July 1, 2024 and sell it today you would earn a total of  80,000  from holding Microfriend or generate 23.67% return on investment over 90 days.

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

SK Hynix  vs.  Microfriend

SK Hynix

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SK Hynix has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in October 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microfriend 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 SK Hynix and Microfriend

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

The idea behind SK Hynix and Microfriend 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.