Correlation Between Dongwon Metal and Korea Computer

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

Diversification Opportunities for Dongwon Metal and Korea Computer

-0.66

Correlation Coefficient

Dongwon Metal  Korea Computer

Excellent diversification

The 3 months correlation between Dongwon and Korea is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dongwon Metal Co and Korea Computer Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Computer Systems 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 Korea Computer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Computer Systems has no effect on the direction of Dongwon Metal i.e., Dongwon Metal and Korea Computer go up and down completely randomly.

Pair Corralation between Dongwon Metal and Korea Computer

Assuming the 90 days trading horizon Dongwon Metal Co is expected to under-perform the Korea Computer. But the stock apears to be less risky and, when comparing its historical volatility, Dongwon Metal Co is 1.6 times less risky than Korea Computer. The stock trades about -0.01 of its potential returns per unit of risk. The Korea Computer Systems is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  572,000  in Korea Computer Systems on September 13, 2024 and sell it today you would earn a total of  361,000  from holding Korea Computer Systems or generate 63.11% return on investment over 90 days.

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

Dongwon Metal Co  vs.  Korea Computer Systems

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.

Korea Computer Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Computer Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Computer sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongwon Metal and Korea Computer

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

The idea behind Dongwon Metal Co and Korea Computer Systems 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.