Correlation Between Moonbae Steel and Doosan Heavy

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

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

Diversification Opportunities for Moonbae Steel and Doosan Heavy

0.23

Correlation Coefficient

Moonbae Steel  Doosan Heavy

Modest diversification

The 3 months correlation between Moonbae and Doosan is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Moonbae Steel and Doosan Heavy Ind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Doosan Heavy Ind and Moonbae 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 Moonbae Steel are associated (or correlated) with Doosan Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Doosan Heavy Ind has no effect on the direction of Moonbae Steel i.e., Moonbae Steel and Doosan Heavy go up and down completely randomly.

Pair Corralation between Moonbae Steel and Doosan Heavy

Assuming the 90 days trading horizon Moonbae Steel is expected to generate 3.83 times less return on investment than Doosan Heavy. But when comparing it to its historical volatility, Moonbae Steel is 1.22 times less risky than Doosan Heavy. It trades about 0.07 of its potential returns per unit of risk. Doosan Heavy Ind is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,786,000  in Doosan Heavy Ind on December 25, 2024 and sell it today you would earn a total of  874,000  from holding Doosan Heavy Ind or generate 48.94% return on investment over 90 days.

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

Moonbae Steel  vs.  Doosan Heavy Ind

Moonbae Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Moonbae Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Moonbae Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Doosan Heavy Ind

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Doosan Heavy Ind are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Doosan Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Moonbae Steel and Doosan Heavy

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

The idea behind Moonbae Steel and Doosan Heavy Ind 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.