Correlation Between Dongwon Metal and SH Energy

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

Diversification Opportunities for Dongwon Metal and SH Energy

0.06

Correlation Coefficient

Dongwon Metal  SH Energy

Significant diversification

The 3 months correlation between Dongwon and 002360 is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dongwon Metal Co and SH Energy Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SH Energy Chemical 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 SH Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SH Energy Chemical has no effect on the direction of Dongwon Metal i.e., Dongwon Metal and SH Energy go up and down completely randomly.

Pair Corralation between Dongwon Metal and SH Energy

Assuming the 90 days trading horizon Dongwon Metal Co is expected to generate 1.59 times more return on investment than SH Energy. However, Dongwon Metal is 1.59 times more volatile than SH Energy Chemical. It trades about 0.08 of its potential returns per unit of risk. SH Energy Chemical is currently generating about 0.02 per unit of risk. If you would invest  142,500  in Dongwon Metal Co on September 14, 2024 and sell it today you would earn a total of  30,500  from holding Dongwon Metal Co or generate 21.4% return on investment over 90 days.

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

Dongwon Metal Co  vs.  SH Energy Chemical

Dongwon Metal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dongwon Metal Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongwon Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

SH Energy Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SH Energy Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SH Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dongwon Metal and SH Energy

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

The idea behind Dongwon Metal Co and SH Energy Chemical 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.