Correlation Between Dongbu Steel and Korea Zinc

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

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

Diversification Opportunities for Dongbu Steel and Korea Zinc

0.67

Correlation Coefficient

Dongbu Steel  Korea Zinc

Poor diversification

The 3 months correlation between Dongbu and Korea is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Dongbu Steel Co and Korea Zinc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Zinc and Dongbu Steel 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 Dongbu Steel Co are associated (or correlated) with Korea Zinc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Zinc has no effect on the direction of Dongbu Steel i.e., Dongbu Steel and Korea Zinc go up and down completely randomly.

Pair Corralation between Dongbu Steel and Korea Zinc

Assuming the 90 days trading horizon Dongbu Steel is expected to generate 3.87 times less return on investment than Korea Zinc. But when comparing it to its historical volatility, Dongbu Steel Co is 1.88 times less risky than Korea Zinc. It trades about 0.14 of its potential returns per unit of risk. Korea Zinc is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  53,500,000  in Korea Zinc on September 4, 2024 and sell it today you would earn a total of  46,500,000  from holding Korea Zinc or generate 86.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Dongbu Steel Co  vs.  Korea Zinc

Dongbu Steel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbu Steel Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbu Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Korea Zinc

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Zinc are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Zinc sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongbu Steel and Korea Zinc

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

The idea behind Dongbu Steel Co and Korea Zinc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.