Correlation Between Dongnam Chemical and Kukdong Oil

Can any of the company-specific risk be diversified away by investing in both Dongnam Chemical and Kukdong Oil 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 Dongnam Chemical and Kukdong Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dongnam Chemical Co and Kukdong Oil Chemicals, you can compare the effects of market volatilities on Dongnam Chemical and Kukdong Oil 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 Dongnam Chemical with a short position of Kukdong Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongnam Chemical and Kukdong Oil.

Diversification Opportunities for Dongnam Chemical and Kukdong Oil

0.66

Correlation Coefficient

Dongnam Chemical  Kukdong Oil

Poor diversification

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

Pair Corralation between Dongnam Chemical and Kukdong Oil

Assuming the 90 days trading horizon Dongnam Chemical Co is expected to under-perform the Kukdong Oil. But the stock apears to be less risky and, when comparing its historical volatility, Dongnam Chemical Co is 2.3 times less risky than Kukdong Oil. The stock trades about -0.03 of its potential returns per unit of risk. The Kukdong Oil Chemicals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  332,021  in Kukdong Oil Chemicals on December 1, 2024 and sell it today you would earn a total of  9,479  from holding Kukdong Oil Chemicals or generate 2.85% return on investment over 90 days.

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

Dongnam Chemical Co  vs.  Kukdong Oil Chemicals

Dongnam Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongnam Chemical Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongnam Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Kukdong Oil Chemicals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kukdong Oil Chemicals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Kukdong Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dongnam Chemical and Kukdong Oil

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

The idea behind Dongnam Chemical Co and Kukdong Oil Chemicals 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.