Correlation Between Dongbu Steel and Wonbang Tech

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

Diversification Opportunities for Dongbu Steel and Wonbang Tech

0.36

Correlation Coefficient

Dongbu Steel  Wonbang Tech

Weak diversification

The 3 months correlation between Dongbu and Wonbang is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Dongbu Steel Co and Wonbang Tech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wonbang Tech 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 Wonbang Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wonbang Tech has no effect on the direction of Dongbu Steel i.e., Dongbu Steel and Wonbang Tech go up and down completely randomly.

Pair Corralation between Dongbu Steel and Wonbang Tech

Assuming the 90 days trading horizon Dongbu Steel Co is expected to under-perform the Wonbang Tech. But the stock apears to be less risky and, when comparing its historical volatility, Dongbu Steel Co is 1.28 times less risky than Wonbang Tech. The stock trades about -0.04 of its potential returns per unit of risk. The Wonbang Tech Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,280,000  in Wonbang Tech Co on December 2, 2024 and sell it today you would earn a total of  36,000  from holding Wonbang Tech Co or generate 2.81% return on investment over 90 days.

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

Dongbu Steel Co  vs.  Wonbang Tech Co

Dongbu Steel

Risk-Adjusted Performance

Very Weak

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

Wonbang Tech

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wonbang Tech Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Wonbang Tech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dongbu Steel and Wonbang Tech

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

The idea behind Dongbu Steel Co and Wonbang Tech 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.