Correlation Between Daewoo Electronic and Sangshin Electronics

Can any of the company-specific risk be diversified away by investing in both Daewoo Electronic and Sangshin 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 Sangshin 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 Sangshin Electronics Co, you can compare the effects of market volatilities on Daewoo Electronic and Sangshin 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 Sangshin Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daewoo Electronic and Sangshin Electronics.

Diversification Opportunities for Daewoo Electronic and Sangshin Electronics

0.7

Correlation Coefficient

Daewoo Electronic  Sangshin Electronics

Poor diversification

The 3 months correlation between Daewoo and Sangshin is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Daewoo Electronic Components and Sangshin Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sangshin 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 Sangshin Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sangshin Electronics has no effect on the direction of Daewoo Electronic i.e., Daewoo Electronic and Sangshin Electronics go up and down completely randomly.

Pair Corralation between Daewoo Electronic and Sangshin Electronics

Assuming the 90 days trading horizon Daewoo Electronic Components is expected to generate 0.8 times more return on investment than Sangshin Electronics. However, Daewoo Electronic Components is 1.25 times less risky than Sangshin Electronics. It trades about 0.05 of its potential returns per unit of risk. Sangshin Electronics Co is currently generating about 0.04 per unit of risk. If you would invest  100,500  in Daewoo Electronic Components on December 26, 2024 and sell it today you would earn a total of  2,300  from holding Daewoo Electronic Components or generate 2.29% 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.  Sangshin Electronics Co

Daewoo Electronic

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Daewoo Electronic Components are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Sangshin Electronics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sangshin Electronics Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sangshin 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 Sangshin Electronics

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

The idea behind Daewoo Electronic Components and Sangshin 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 CEOs Directory module to screen CEOs from public companies around the world.