Correlation Between Husteel and Moonbae Steel

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

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

Diversification Opportunities for Husteel and Moonbae Steel

0.53

Correlation Coefficient

Husteel  Moonbae Steel

Very weak diversification

The 3 months correlation between Husteel and Moonbae is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Husteel and Moonbae Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moonbae Steel and Husteel 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 Husteel are associated (or correlated) with Moonbae Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moonbae Steel has no effect on the direction of Husteel i.e., Husteel and Moonbae Steel go up and down completely randomly.

Pair Corralation between Husteel and Moonbae Steel

Assuming the 90 days trading horizon Husteel is expected to generate 1.33 times more return on investment than Moonbae Steel. However, Husteel is 1.33 times more volatile than Moonbae Steel. It trades about -0.02 of its potential returns per unit of risk. Moonbae Steel is currently generating about -0.05 per unit of risk. If you would invest  478,000  in Husteel on September 20, 2024 and sell it today you would lose (83,000) from holding Husteel or give up 17.36% of portfolio value over 90 days.

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

Husteel  vs.  Moonbae Steel

Husteel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Moonbae Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Husteel and Moonbae Steel

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

The idea behind Husteel and Moonbae Steel 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.