Correlation Between CBI and Daedong Gear

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

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

Diversification Opportunities for CBI and Daedong Gear

-0.91

Correlation Coefficient

CBI  Daedong Gear

Pay attention - limited upside

The 3 months correlation between CBI and Daedong is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding CBI Co and Daedong Gear Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daedong Gear and CBI 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 CBI Co are associated (or correlated) with Daedong Gear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daedong Gear has no effect on the direction of CBI i.e., CBI and Daedong Gear go up and down completely randomly.

Pair Corralation between CBI and Daedong Gear

Assuming the 90 days trading horizon CBI Co is expected to under-perform the Daedong Gear. But the stock apears to be less risky and, when comparing its historical volatility, CBI Co is 2.43 times less risky than Daedong Gear. The stock trades about -0.06 of its potential returns per unit of risk. The Daedong Gear Co is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,257,000  in Daedong Gear Co on December 26, 2024 and sell it today you would earn a total of  883,000  from holding Daedong Gear Co or generate 70.25% return on investment over 90 days.

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

CBI Co  vs.  Daedong Gear Co

CBI Co

Risk-Adjusted Performance

Very Weak

Over the last 90 days CBI Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Daedong Gear

Risk-Adjusted Performance

Good

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

Pair Trading with CBI and Daedong Gear

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

The idea behind CBI Co and Daedong Gear 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.