Correlation Between SH Energy and Dong A

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

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

Diversification Opportunities for SH Energy and Dong A

0.57

Correlation Coefficient

SH Energy  Dong A

Very weak diversification

The 3 months correlation between 002360 and Dong is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding SH Energy Chemical 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 SH Energy 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 SH Energy Chemical are associated (or correlated) with Dong A. 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 SH Energy i.e., SH Energy and Dong A go up and down completely randomly.

Pair Corralation between SH Energy and Dong A

Assuming the 90 days trading horizon SH Energy is expected to generate 1.03 times less return on investment than Dong A. In addition to that, SH Energy is 1.19 times more volatile than Dong A Steel Technology. It trades about 0.28 of its total potential returns per unit of risk. Dong A Steel Technology is currently generating about 0.34 per unit of volatility. If you would invest  250,941  in Dong A Steel Technology on October 9, 2024 and sell it today you would earn a total of  49,059  from holding Dong A Steel Technology or generate 19.55% return on investment over 90 days.

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

SH Energy Chemical  vs.  Dong A Steel Technology

SH Energy Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SH Energy and Dong A

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

The idea behind SH Energy Chemical 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.