Correlation Between Dongkuk Steel and Korea Zinc

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

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

Diversification Opportunities for Dongkuk Steel and Korea Zinc

-0.46

Correlation Coefficient

Dongkuk Steel  Korea Zinc

Very good diversification

The 3 months correlation between Dongkuk and Korea is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Dongkuk Steel Mill and Korea Zinc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Zinc and Dongkuk Steel 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 Dongkuk Steel Mill are associated (or correlated) with Korea Zinc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Zinc has no effect on the direction of Dongkuk Steel i.e., Dongkuk Steel and Korea Zinc go up and down completely randomly.

Pair Corralation between Dongkuk Steel and Korea Zinc

Assuming the 90 days trading horizon Dongkuk Steel Mill is expected to under-perform the Korea Zinc. But the stock apears to be less risky and, when comparing its historical volatility, Dongkuk Steel Mill is 4.06 times less risky than Korea Zinc. The stock trades about -0.09 of its potential returns per unit of risk. The Korea Zinc is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  53,900,000  in Korea Zinc on September 5, 2024 and sell it today you would earn a total of  46,100,000  from holding Korea Zinc or generate 85.53% return on investment over 90 days.

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

Dongkuk Steel Mill  vs.  Korea Zinc

Dongkuk Steel Mill

Risk-Adjusted Performance

0 of 100

Very Weak

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

Korea Zinc

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Zinc are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Zinc sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongkuk Steel and Korea Zinc

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

The idea behind Dongkuk Steel Mill and Korea Zinc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.