Correlation Between Dongwon System and Daejoo Electronic

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

By analyzing existing cross correlation between Dongwon System and Daejoo Electronic Materials, you can compare the effects of market volatilities on Dongwon System and Daejoo Electronic 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 Daejoo Electronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongwon System and Daejoo Electronic.

Diversification Opportunities for Dongwon System and Daejoo Electronic

0.78

Correlation Coefficient

Dongwon System  Daejoo Electronic

Poor diversification

The 3 months correlation between Dongwon and Daejoo is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dongwon System and Daejoo Electronic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daejoo Electronic 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 Daejoo Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daejoo Electronic has no effect on the direction of Dongwon System i.e., Dongwon System and Daejoo Electronic go up and down completely randomly.

Pair Corralation between Dongwon System and Daejoo Electronic

Assuming the 90 days trading horizon Dongwon System is expected to under-perform the Daejoo Electronic. But the stock apears to be less risky and, when comparing its historical volatility, Dongwon System is 1.66 times less risky than Daejoo Electronic. The stock trades about -0.09 of its potential returns per unit of risk. The Daejoo Electronic Materials is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  10,130,000  in Daejoo Electronic Materials on October 21, 2024 and sell it today you would earn a total of  290,000  from holding Daejoo Electronic Materials or generate 2.86% 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.  Daejoo Electronic Materials

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.

Daejoo Electronic

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Dongwon System and Daejoo Electronic

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

The idea behind Dongwon System and Daejoo Electronic Materials 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.