Correlation Between Daehan Synthetic and Dongbu Steel

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

By analyzing existing cross correlation between Daehan Synthetic Fiber and Dongbu Steel Co, you can compare the effects of market volatilities on Daehan Synthetic and Dongbu 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 Daehan Synthetic with a short position of Dongbu Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daehan Synthetic and Dongbu Steel.

Diversification Opportunities for Daehan Synthetic and Dongbu Steel

0.55

Correlation Coefficient

Daehan Synthetic  Dongbu Steel

Very weak diversification

The 3 months correlation between Daehan and Dongbu is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Daehan Synthetic Fiber and Dongbu Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbu Steel and Daehan Synthetic 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 Daehan Synthetic Fiber are associated (or correlated) with Dongbu Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbu Steel has no effect on the direction of Daehan Synthetic i.e., Daehan Synthetic and Dongbu Steel go up and down completely randomly.

Pair Corralation between Daehan Synthetic and Dongbu Steel

Assuming the 90 days trading horizon Daehan Synthetic is expected to generate 1.57 times less return on investment than Dongbu Steel. But when comparing it to its historical volatility, Daehan Synthetic Fiber is 2.77 times less risky than Dongbu Steel. It trades about 0.19 of its potential returns per unit of risk. Dongbu Steel Co is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  574,000  in Dongbu Steel Co on December 26, 2024 and sell it today you would earn a total of  75,000  from holding Dongbu Steel Co or generate 13.07% return on investment over 90 days.

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

Daehan Synthetic Fiber  vs.  Dongbu Steel Co

Daehan Synthetic Fiber

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daehan Synthetic Fiber are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daehan Synthetic may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Dongbu Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbu Steel Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbu Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daehan Synthetic and Dongbu Steel

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

The idea behind Daehan Synthetic Fiber and Dongbu Steel Co 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.