Correlation Between Dongbu Steel and Daedong Steel

Can any of the company-specific risk be diversified away by investing in both Dongbu Steel and Daedong Steel 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 Daedong Steel 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 Daedong Steel Co, you can compare the effects of market volatilities on Dongbu Steel and Daedong Steel 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 Daedong Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongbu Steel and Daedong Steel.

Diversification Opportunities for Dongbu Steel and Daedong Steel

-0.32

Correlation Coefficient

Dongbu Steel  Daedong Steel

Very good diversification

The 3 months correlation between Dongbu and Daedong is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Dongbu Steel Co and Daedong Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daedong Steel 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 Daedong Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daedong Steel has no effect on the direction of Dongbu Steel i.e., Dongbu Steel and Daedong Steel go up and down completely randomly.

Pair Corralation between Dongbu Steel and Daedong Steel

Assuming the 90 days trading horizon Dongbu Steel Co is expected to generate 1.04 times more return on investment than Daedong Steel. However, Dongbu Steel is 1.04 times more volatile than Daedong Steel Co. It trades about 0.14 of its potential returns per unit of risk. Daedong Steel Co is currently generating about -0.08 per unit of risk. If you would invest  558,000  in Dongbu Steel Co on September 4, 2024 and sell it today you would earn a total of  99,000  from holding Dongbu Steel Co or generate 17.74% return on investment over 90 days.

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

Dongbu Steel Co  vs.  Daedong Steel Co

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.

Daedong Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daedong Steel 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.

Pair Trading with Dongbu Steel and Daedong Steel

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

The idea behind Dongbu Steel Co and Daedong Steel 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.