Correlation Between HMM and Dongwon System

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

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

Diversification Opportunities for HMM and Dongwon System

-0.55

Correlation Coefficient

HMM  Dongwon System

Excellent diversification

The 3 months correlation between HMM and Dongwon is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding HMM Co and Dongwon System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwon System and HMM 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 HMM Co are associated (or correlated) with Dongwon System. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongwon System has no effect on the direction of HMM i.e., HMM and Dongwon System go up and down completely randomly.

Pair Corralation between HMM and Dongwon System

Assuming the 90 days trading horizon HMM Co is expected to generate 0.81 times more return on investment than Dongwon System. However, HMM Co is 1.23 times less risky than Dongwon System. It trades about 0.09 of its potential returns per unit of risk. Dongwon System is currently generating about -0.14 per unit of risk. If you would invest  1,687,000  in HMM Co on October 9, 2024 and sell it today you would earn a total of  203,000  from holding HMM Co or generate 12.03% return on investment over 90 days.

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

HMM Co  vs.  Dongwon System

HMM Co

Risk-Adjusted Performance

7 of 100

Modest

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

Dongwon System

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongwon System has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with HMM and Dongwon System

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

The idea behind HMM Co and Dongwon System 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.