Correlation Between Korea Steel and Dongil Metal

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

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

Diversification Opportunities for Korea Steel and Dongil Metal

0.34

Correlation Coefficient

Korea Steel  Dongil Metal

Weak diversification

The 3 months correlation between Korea and Dongil is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Korea Steel Co and Dongil Metal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongil Metal and Korea Steel 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 Korea Steel Co are associated (or correlated) with Dongil Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongil Metal has no effect on the direction of Korea Steel i.e., Korea Steel and Dongil Metal go up and down completely randomly.

Pair Corralation between Korea Steel and Dongil Metal

Assuming the 90 days trading horizon Korea Steel Co is expected to generate 1.77 times more return on investment than Dongil Metal. However, Korea Steel is 1.77 times more volatile than Dongil Metal Co. It trades about 0.68 of its potential returns per unit of risk. Dongil Metal Co is currently generating about 0.37 per unit of risk. If you would invest  122,700  in Korea Steel Co on October 8, 2024 and sell it today you would earn a total of  46,200  from holding Korea Steel Co or generate 37.65% return on investment over 90 days.

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

Korea Steel Co  vs.  Dongil Metal Co

Korea Steel

Risk-Adjusted Performance

8 of 100

OK

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

Dongil Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Korea Steel and Dongil Metal

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

The idea behind Korea Steel Co and Dongil Metal 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.