Correlation Between Dongwon System and LF Co

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

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

Diversification Opportunities for Dongwon System and LF Co

0.68

Correlation Coefficient

Dongwon System  LF Co

Poor diversification

The 3 months correlation between Dongwon and 066970 is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Dongwon System and LF Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LF Co and Dongwon System 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 Dongwon System are associated (or correlated) with LF Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LF Co has no effect on the direction of Dongwon System i.e., Dongwon System and LF Co go up and down completely randomly.

Pair Corralation between Dongwon System and LF Co

Assuming the 90 days trading horizon Dongwon System is expected to generate 2.65 times less return on investment than LF Co. But when comparing it to its historical volatility, Dongwon System is 1.4 times less risky than LF Co. It trades about 0.04 of its potential returns per unit of risk. LF Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,040,000  in LF Co on September 13, 2024 and sell it today you would earn a total of  1,280,000  from holding LF Co or generate 14.16% return on investment over 90 days.

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

Dongwon System  vs.  LF Co

Dongwon System

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongwon System are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongwon System may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LF Co

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LF Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LF Co sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongwon System and LF Co

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

The idea behind Dongwon System and LF 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.