Correlation Between Dongnam Chemical and Jeil Steel

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

Diversification Opportunities for Dongnam Chemical and Jeil Steel

-0.69

Correlation Coefficient

Dongnam Chemical  Jeil Steel

Excellent diversification

The 3 months correlation between Dongnam and Jeil is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dongnam Chemical Co and Jeil Steel Mfg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jeil Steel Mfg 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 Jeil Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jeil Steel Mfg has no effect on the direction of Dongnam Chemical i.e., Dongnam Chemical and Jeil Steel go up and down completely randomly.

Pair Corralation between Dongnam Chemical and Jeil Steel

Assuming the 90 days trading horizon Dongnam Chemical Co is expected to generate 0.44 times more return on investment than Jeil Steel. However, Dongnam Chemical Co is 2.27 times less risky than Jeil Steel. It trades about 0.19 of its potential returns per unit of risk. Jeil Steel Mfg is currently generating about -0.03 per unit of risk. If you would invest  2,908,756  in Dongnam Chemical Co on December 4, 2024 and sell it today you would earn a total of  516,244  from holding Dongnam Chemical Co or generate 17.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

Dongnam Chemical Co  vs.  Jeil Steel Mfg

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 14 (%) 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.

Jeil Steel Mfg

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Dongnam Chemical Co and Jeil Steel Mfg 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.