Correlation Between Hanil Iron and Dong-A Steel

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

By analyzing existing cross correlation between Hanil Iron Steel and Dong A Steel Technology, you can compare the effects of market volatilities on Hanil Iron and Dong-A 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 Hanil Iron with a short position of Dong-A Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanil Iron and Dong-A Steel.

Diversification Opportunities for Hanil Iron and Dong-A Steel

0.22

Correlation Coefficient

Hanil Iron  Dong-A Steel

Modest diversification

The 3 months correlation between Hanil and Dong-A is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Hanil Iron Steel and Dong A Steel Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong A Steel and Hanil Iron 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 Hanil Iron Steel are associated (or correlated) with Dong-A Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong A Steel has no effect on the direction of Hanil Iron i.e., Hanil Iron and Dong-A Steel go up and down completely randomly.

Pair Corralation between Hanil Iron and Dong-A Steel

Assuming the 90 days trading horizon Hanil Iron Steel is expected to under-perform the Dong-A Steel. But the stock apears to be less risky and, when comparing its historical volatility, Hanil Iron Steel is 1.36 times less risky than Dong-A Steel. The stock trades about -0.03 of its potential returns per unit of risk. The Dong A Steel Technology is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  455,000  in Dong A Steel Technology on September 19, 2024 and sell it today you would lose (150,500) from holding Dong A Steel Technology or give up 33.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Hanil Iron Steel  vs.  Dong A Steel Technology

Hanil Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dong A Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hanil Iron and Dong-A Steel

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

The idea behind Hanil Iron Steel and Dong A Steel 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.