Correlation Between Hanwha Chemical and Daou Technology

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

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

Diversification Opportunities for Hanwha Chemical and Daou Technology

0.45

Correlation Coefficient

Hanwha Chemical  Daou Technology

Very weak diversification

The 3 months correlation between Hanwha and Daou is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Hanwha Chemical Corp and Daou Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daou Technology and Hanwha Chemical 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 Hanwha Chemical Corp are associated (or correlated) with Daou Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daou Technology has no effect on the direction of Hanwha Chemical i.e., Hanwha Chemical and Daou Technology go up and down completely randomly.

Pair Corralation between Hanwha Chemical and Daou Technology

Assuming the 90 days trading horizon Hanwha Chemical Corp is expected to generate 2.0 times more return on investment than Daou Technology. However, Hanwha Chemical is 2.0 times more volatile than Daou Technology. It trades about 0.09 of its potential returns per unit of risk. Daou Technology is currently generating about 0.17 per unit of risk. If you would invest  1,612,000  in Hanwha Chemical Corp on December 30, 2024 and sell it today you would earn a total of  306,000  from holding Hanwha Chemical Corp or generate 18.98% return on investment over 90 days.

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

Hanwha Chemical Corp  vs.  Daou Technology

Hanwha Chemical Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hanwha Chemical Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hanwha Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Daou Technology

Risk-Adjusted Performance

Good

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

Pair Trading with Hanwha Chemical and Daou Technology

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

The idea behind Hanwha Chemical Corp and Daou Technology 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..