Correlation Between Dongwon Metal and Dongbang Transport

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

Diversification Opportunities for Dongwon Metal and Dongbang Transport

0.06

Correlation Coefficient

Dongwon Metal  Dongbang Transport

Significant diversification

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

Pair Corralation between Dongwon Metal and Dongbang Transport

Assuming the 90 days trading horizon Dongwon Metal Co is expected to generate 3.27 times more return on investment than Dongbang Transport. However, Dongwon Metal is 3.27 times more volatile than Dongbang Transport Logistics. It trades about 0.15 of its potential returns per unit of risk. Dongbang Transport Logistics is currently generating about 0.01 per unit of risk. If you would invest  111,900  in Dongwon Metal Co on November 29, 2024 and sell it today you would earn a total of  87,900  from holding Dongwon Metal Co or generate 78.55% 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.  Dongbang Transport Logistics

Dongwon Metal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongwon Metal Co are ranked lower than 12 (%) 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.

Dongbang Transport

Risk-Adjusted Performance

Weak

Over the last 90 days Dongbang Transport Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dongbang Transport 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 Dongbang Transport

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

The idea behind Dongwon Metal Co and Dongbang Transport Logistics 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.