Correlation Between Daewoo Electronic and Shinil Electronics

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

By analyzing existing cross correlation between Daewoo Electronic Components and Shinil Electronics Co, you can compare the effects of market volatilities on Daewoo Electronic and Shinil Electronics 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 Daewoo Electronic with a short position of Shinil Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daewoo Electronic and Shinil Electronics.

Diversification Opportunities for Daewoo Electronic and Shinil Electronics

0.64

Correlation Coefficient

Daewoo Electronic  Shinil Electronics

Poor diversification

The 3 months correlation between Daewoo and Shinil is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Daewoo Electronic Components and Shinil Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shinil Electronics and Daewoo Electronic 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 Daewoo Electronic Components are associated (or correlated) with Shinil Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shinil Electronics has no effect on the direction of Daewoo Electronic i.e., Daewoo Electronic and Shinil Electronics go up and down completely randomly.

Pair Corralation between Daewoo Electronic and Shinil Electronics

Assuming the 90 days trading horizon Daewoo Electronic Components is expected to generate 1.2 times more return on investment than Shinil Electronics. However, Daewoo Electronic is 1.2 times more volatile than Shinil Electronics Co. It trades about 0.32 of its potential returns per unit of risk. Shinil Electronics Co is currently generating about 0.26 per unit of risk. If you would invest  90,600  in Daewoo Electronic Components on October 9, 2024 and sell it today you would earn a total of  12,000  from holding Daewoo Electronic Components or generate 13.25% return on investment over 90 days.

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

Daewoo Electronic Components  vs.  Shinil Electronics Co

Daewoo Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Shinil Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Daewoo Electronic and Shinil Electronics

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

The idea behind Daewoo Electronic Components and Shinil Electronics 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.