Correlation Between Dongkuk Steel and Woori Technology

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

Diversification Opportunities for Dongkuk Steel and Woori Technology

-0.18

Correlation Coefficient

Dongkuk Steel  Woori Technology

Good diversification

The 3 months correlation between Dongkuk and Woori is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Dongkuk Steel Mill and Woori Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woori Technology 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 Woori Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woori Technology has no effect on the direction of Dongkuk Steel i.e., Dongkuk Steel and Woori Technology go up and down completely randomly.

Pair Corralation between Dongkuk Steel and Woori Technology

Assuming the 90 days trading horizon Dongkuk Steel Mill is expected to generate 0.37 times more return on investment than Woori Technology. However, Dongkuk Steel Mill is 2.74 times less risky than Woori Technology. It trades about 0.05 of its potential returns per unit of risk. Woori Technology is currently generating about -0.03 per unit of risk. If you would invest  749,000  in Dongkuk Steel Mill on November 28, 2024 and sell it today you would earn a total of  21,000  from holding Dongkuk Steel Mill or generate 2.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Dongkuk Steel Mill  vs.  Woori Technology

Dongkuk Steel Mill

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongkuk Steel Mill are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Woori Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Woori Technology 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 Dongkuk Steel and Woori Technology

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

The idea behind Dongkuk Steel Mill and Woori Technology 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.