Correlation Between Sung Bo and Dongwoo Farm

Can any of the company-specific risk be diversified away by investing in both Sung Bo and Dongwoo Farm 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 Sung Bo and Dongwoo Farm into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sung Bo Chemicals and Dongwoo Farm To, you can compare the effects of market volatilities on Sung Bo and Dongwoo Farm 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 Sung Bo with a short position of Dongwoo Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sung Bo and Dongwoo Farm.

Diversification Opportunities for Sung Bo and Dongwoo Farm

0.82

Correlation Coefficient

Sung Bo  Dongwoo Farm

Very poor diversification

The 3 months correlation between Sung and Dongwoo is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sung Bo Chemicals and Dongwoo Farm To in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwoo Farm To and Sung Bo 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 Sung Bo Chemicals are associated (or correlated) with Dongwoo Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongwoo Farm To has no effect on the direction of Sung Bo i.e., Sung Bo and Dongwoo Farm go up and down completely randomly.

Pair Corralation between Sung Bo and Dongwoo Farm

Assuming the 90 days trading horizon Sung Bo Chemicals is expected to generate 0.57 times more return on investment than Dongwoo Farm. However, Sung Bo Chemicals is 1.75 times less risky than Dongwoo Farm. It trades about 0.04 of its potential returns per unit of risk. Dongwoo Farm To is currently generating about -0.04 per unit of risk. If you would invest  248,791  in Sung Bo Chemicals on September 30, 2024 and sell it today you would earn a total of  4,209  from holding Sung Bo Chemicals or generate 1.69% return on investment over 90 days.

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

Sung Bo Chemicals  vs.  Dongwoo Farm To

Sung Bo Chemicals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sung Bo Chemicals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sung Bo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dongwoo Farm To

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sung Bo and Dongwoo Farm

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

The idea behind Sung Bo Chemicals and Dongwoo Farm To 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.