Correlation Between Kumho Industrial and Digital Power

Can any of the company-specific risk be diversified away by investing in both Kumho Industrial and Digital Power 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 Kumho Industrial and Digital Power into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kumho Industrial Co and Digital Power Communications, you can compare the effects of market volatilities on Kumho Industrial and Digital Power 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 Kumho Industrial with a short position of Digital Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kumho Industrial and Digital Power.

Diversification Opportunities for Kumho Industrial and Digital Power

-0.17

Correlation Coefficient

Kumho Industrial  Digital Power

Good diversification

The 3 months correlation between Kumho and Digital is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Kumho Industrial Co and Digital Power Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Power Commun and Kumho Industrial 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 Kumho Industrial Co are associated (or correlated) with Digital Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Power Commun has no effect on the direction of Kumho Industrial i.e., Kumho Industrial and Digital Power go up and down completely randomly.

Pair Corralation between Kumho Industrial and Digital Power

Assuming the 90 days trading horizon Kumho Industrial Co is expected to generate 1.9 times more return on investment than Digital Power. However, Kumho Industrial is 1.9 times more volatile than Digital Power Communications. It trades about 0.06 of its potential returns per unit of risk. Digital Power Communications is currently generating about -0.22 per unit of risk. If you would invest  237,500  in Kumho Industrial Co on December 5, 2024 and sell it today you would earn a total of  8,000  from holding Kumho Industrial Co or generate 3.37% return on investment over 90 days.

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

Kumho Industrial Co  vs.  Digital Power Communications

Kumho Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kumho Industrial Co 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.

Digital Power Commun

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digital Power Communications 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 Kumho Industrial and Digital Power

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

The idea behind Kumho Industrial Co and Digital Power Communications 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.