Correlation Between Kukdong Oil and Dongsin Engineering

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

By analyzing existing cross correlation between Kukdong Oil Chemicals and Dongsin Engineering Construction, you can compare the effects of market volatilities on Kukdong Oil and Dongsin Engineering 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 Kukdong Oil with a short position of Dongsin Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kukdong Oil and Dongsin Engineering.

Diversification Opportunities for Kukdong Oil and Dongsin Engineering

-0.14

Correlation Coefficient

Kukdong Oil  Dongsin Engineering

Good diversification

The 3 months correlation between Kukdong and Dongsin is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Kukdong Oil Chemicals and Dongsin Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongsin Engineering and Kukdong Oil 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 Kukdong Oil Chemicals are associated (or correlated) with Dongsin Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongsin Engineering has no effect on the direction of Kukdong Oil i.e., Kukdong Oil and Dongsin Engineering go up and down completely randomly.

Pair Corralation between Kukdong Oil and Dongsin Engineering

Assuming the 90 days trading horizon Kukdong Oil is expected to generate 2.93 times less return on investment than Dongsin Engineering. But when comparing it to its historical volatility, Kukdong Oil Chemicals is 11.22 times less risky than Dongsin Engineering. It trades about 0.08 of its potential returns per unit of risk. Dongsin Engineering Construction is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,484,518  in Dongsin Engineering Construction on October 22, 2024 and sell it today you would lose (154,518) from holding Dongsin Engineering Construction or give up 3.45% of portfolio value over 90 days.

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

Kukdong Oil Chemicals  vs.  Dongsin Engineering Constructi

Kukdong Oil Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongsin Engineering

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongsin Engineering Construction are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongsin Engineering sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kukdong Oil and Dongsin Engineering

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

The idea behind Kukdong Oil Chemicals and Dongsin Engineering Construction 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.