Correlation Between Youl Chon and Dongnam Chemical

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

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

Diversification Opportunities for Youl Chon and Dongnam Chemical

0.69

Correlation Coefficient

Youl Chon  Dongnam Chemical

Poor diversification

The 3 months correlation between Youl and Dongnam is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Youl Chon Chemical and Dongnam Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongnam Chemical and Youl Chon 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 Youl Chon Chemical are associated (or correlated) with Dongnam Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongnam Chemical has no effect on the direction of Youl Chon i.e., Youl Chon and Dongnam Chemical go up and down completely randomly.

Pair Corralation between Youl Chon and Dongnam Chemical

Assuming the 90 days trading horizon Youl Chon Chemical is expected to generate 3.44 times more return on investment than Dongnam Chemical. However, Youl Chon is 3.44 times more volatile than Dongnam Chemical Co. It trades about 0.1 of its potential returns per unit of risk. Dongnam Chemical Co is currently generating about 0.17 per unit of risk. If you would invest  2,208,456  in Youl Chon Chemical on December 2, 2024 and sell it today you would earn a total of  596,544  from holding Youl Chon Chemical or generate 27.01% return on investment over 90 days.

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

Youl Chon Chemical  vs.  Dongnam Chemical Co

Youl Chon Chemical

Risk-Adjusted Performance

OK

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

Dongnam Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongnam Chemical Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongnam Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Youl Chon and Dongnam Chemical

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

The idea behind Youl Chon Chemical and Dongnam Chemical 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.