Correlation Between Hanshin Construction and Dongbang Ship

Can any of the company-specific risk be diversified away by investing in both Hanshin Construction and Dongbang Ship 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 Hanshin Construction and Dongbang Ship into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hanshin Construction Co and Dongbang Ship Machinery, you can compare the effects of market volatilities on Hanshin Construction and Dongbang Ship 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 Hanshin Construction with a short position of Dongbang Ship. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanshin Construction and Dongbang Ship.

Diversification Opportunities for Hanshin Construction and Dongbang Ship

-0.19

Correlation Coefficient

Hanshin Construction  Dongbang Ship

Good diversification

The 3 months correlation between Hanshin and Dongbang is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Hanshin Construction Co and Dongbang Ship Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbang Ship Machinery and Hanshin Construction 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 Hanshin Construction Co are associated (or correlated) with Dongbang Ship. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbang Ship Machinery has no effect on the direction of Hanshin Construction i.e., Hanshin Construction and Dongbang Ship go up and down completely randomly.

Pair Corralation between Hanshin Construction and Dongbang Ship

Assuming the 90 days trading horizon Hanshin Construction Co is expected to under-perform the Dongbang Ship. But the stock apears to be less risky and, when comparing its historical volatility, Hanshin Construction Co is 2.38 times less risky than Dongbang Ship. The stock trades about -0.05 of its potential returns per unit of risk. The Dongbang Ship Machinery is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  315,000  in Dongbang Ship Machinery on December 26, 2024 and sell it today you would earn a total of  2,000  from holding Dongbang Ship Machinery or generate 0.63% return on investment over 90 days.

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

Hanshin Construction Co  vs.  Dongbang Ship Machinery

Hanshin Construction

Risk-Adjusted Performance

Very Weak

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

Dongbang Ship Machinery

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbang Ship Machinery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dongbang Ship is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hanshin Construction and Dongbang Ship

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

The idea behind Hanshin Construction Co and Dongbang Ship Machinery 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.