Correlation Between Hanwha Solutions and Korea Petro

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

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

Diversification Opportunities for Hanwha Solutions and Korea Petro

0.67

Correlation Coefficient

Hanwha Solutions  Korea Petro

Poor diversification

The 3 months correlation between Hanwha and Korea is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Hanwha Solutions and Korea Petro Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Petro Chemical and Hanwha Solutions 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 Hanwha Solutions are associated (or correlated) with Korea Petro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Petro Chemical has no effect on the direction of Hanwha Solutions i.e., Hanwha Solutions and Korea Petro go up and down completely randomly.

Pair Corralation between Hanwha Solutions and Korea Petro

Assuming the 90 days trading horizon Hanwha Solutions is expected to generate 2.04 times less return on investment than Korea Petro. But when comparing it to its historical volatility, Hanwha Solutions is 1.07 times less risky than Korea Petro. It trades about 0.1 of its potential returns per unit of risk. Korea Petro Chemical is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,270,000  in Korea Petro Chemical on July 2, 2024 and sell it today you would earn a total of  1,290,000  from holding Korea Petro Chemical or generate 12.56% return on investment over 90 days.

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

Hanwha Solutions  vs.  Korea Petro Chemical

Hanwha Solutions

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hanwha Solutions are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hanwha Solutions may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Korea Petro Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Petro Chemical 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 Hanwha Solutions and Korea Petro

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

The idea behind Hanwha Solutions and Korea Petro Chemical 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.