Correlation Between Dongwon Metal and Daelim Industrial

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

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

Diversification Opportunities for Dongwon Metal and Daelim Industrial

0.8

Correlation Coefficient

Dongwon Metal  Daelim Industrial

Very poor diversification

The 3 months correlation between Dongwon and Daelim is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dongwon Metal Co and Daelim Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daelim Industrial and Dongwon Metal 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 Metal Co are associated (or correlated) with Daelim Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daelim Industrial has no effect on the direction of Dongwon Metal i.e., Dongwon Metal and Daelim Industrial go up and down completely randomly.

Pair Corralation between Dongwon Metal and Daelim Industrial

Assuming the 90 days trading horizon Dongwon Metal Co is expected to generate 2.45 times more return on investment than Daelim Industrial. However, Dongwon Metal is 2.45 times more volatile than Daelim Industrial Co. It trades about -0.01 of its potential returns per unit of risk. Daelim Industrial Co is currently generating about -0.16 per unit of risk. If you would invest  142,500  in Dongwon Metal Co on September 13, 2024 and sell it today you would lose (9,400) from holding Dongwon Metal Co or give up 6.6% of portfolio value over 90 days.

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

Dongwon Metal Co  vs.  Daelim Industrial Co

Dongwon Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Daelim Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daelim Industrial Co 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dongwon Metal and Daelim Industrial

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

The idea behind Dongwon Metal Co and Daelim Industrial 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .