Correlation Between Dongkuk Steel and Dongbu Steel

Can any of the company-specific risk be diversified away by investing in both Dongkuk Steel and Dongbu 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 Dongkuk Steel and Dongbu Steel 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 Dongbu Steel Co, you can compare the effects of market volatilities on Dongkuk Steel and Dongbu 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 Dongkuk Steel with a short position of Dongbu Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongkuk Steel and Dongbu Steel.

Diversification Opportunities for Dongkuk Steel and Dongbu Steel

0.19

Correlation Coefficient

Dongkuk Steel  Dongbu Steel

Average diversification

The 3 months correlation between Dongkuk and Dongbu is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Dongkuk Steel Mill and Dongbu Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbu Steel 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 Dongbu Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbu Steel has no effect on the direction of Dongkuk Steel i.e., Dongkuk Steel and Dongbu Steel go up and down completely randomly.

Pair Corralation between Dongkuk Steel and Dongbu Steel

Assuming the 90 days trading horizon Dongkuk Steel Mill is expected to generate 13.94 times more return on investment than Dongbu Steel. However, Dongkuk Steel is 13.94 times more volatile than Dongbu Steel Co. It trades about 0.04 of its potential returns per unit of risk. Dongbu Steel Co is currently generating about -0.02 per unit of risk. If you would invest  919,682  in Dongkuk Steel Mill on September 6, 2024 and sell it today you would lose (194,682) from holding Dongkuk Steel Mill or give up 21.17% of portfolio value over 90 days.

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

Dongkuk Steel Mill  vs.  Dongbu Steel Co

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 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.

Dongbu Steel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbu Steel Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbu Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dongkuk Steel and Dongbu Steel

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

The idea behind Dongkuk Steel Mill and Dongbu 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.