Correlation Between Hankook Furniture and Korean Reinsurance

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

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

Diversification Opportunities for Hankook Furniture and Korean Reinsurance

0.56

Correlation Coefficient

Hankook Furniture  Korean Reinsurance

Very weak diversification

The 3 months correlation between Hankook and Korean is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Hankook Furniture Co and Korean Reinsurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Reinsurance and Hankook Furniture 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 Hankook Furniture Co are associated (or correlated) with Korean Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Reinsurance has no effect on the direction of Hankook Furniture i.e., Hankook Furniture and Korean Reinsurance go up and down completely randomly.

Pair Corralation between Hankook Furniture and Korean Reinsurance

Assuming the 90 days trading horizon Hankook Furniture is expected to generate 1.12 times less return on investment than Korean Reinsurance. But when comparing it to its historical volatility, Hankook Furniture Co is 1.1 times less risky than Korean Reinsurance. It trades about 0.14 of its potential returns per unit of risk. Korean Reinsurance Co is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  725,833  in Korean Reinsurance Co on September 3, 2024 and sell it today you would earn a total of  85,167  from holding Korean Reinsurance Co or generate 11.73% return on investment over 90 days.

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

Hankook Furniture Co  vs.  Korean Reinsurance Co

Hankook Furniture

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hankook Furniture Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hankook Furniture may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Korean Reinsurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Korean Reinsurance Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Reinsurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hankook Furniture and Korean Reinsurance

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

The idea behind Hankook Furniture Co and Korean Reinsurance 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.