Correlation Between Husteel and Daehan Steel

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

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

Diversification Opportunities for Husteel and Daehan Steel

-0.53

Correlation Coefficient

Husteel  Daehan Steel

Excellent diversification

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

Pair Corralation between Husteel and Daehan Steel

Assuming the 90 days trading horizon Husteel is expected to under-perform the Daehan Steel. In addition to that, Husteel is 1.01 times more volatile than Daehan Steel. It trades about -0.06 of its total potential returns per unit of risk. Daehan Steel is currently generating about 0.21 per unit of volatility. If you would invest  1,320,000  in Daehan Steel on September 24, 2024 and sell it today you would earn a total of  341,000  from holding Daehan Steel or generate 25.83% return on investment over 90 days.

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

Husteel  vs.  Daehan 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 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.

Daehan Steel

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Daehan Steel are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daehan Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Husteel and Daehan Steel

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

The idea behind Husteel and Daehan 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.