Correlation Between Digital Power and Korean Reinsurance

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Can any of the company-specific risk be diversified away by investing in both Digital Power and Korean Reinsurance 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 Digital Power and Korean Reinsurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Digital Power Communications and Korean Reinsurance Co, you can compare the effects of market volatilities on Digital Power and Korean Reinsurance 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 Digital Power with a short position of Korean Reinsurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital Power and Korean Reinsurance.

Diversification Opportunities for Digital Power and Korean Reinsurance

0.1
  Correlation Coefficient

Average diversification

The 3 months correlation between Digital and Korean is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Digital Power Communications and Korean Reinsurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korean Reinsurance and Digital Power 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 Digital Power Communications are associated (or correlated) with Korean Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korean Reinsurance has no effect on the direction of Digital Power i.e., Digital Power and Korean Reinsurance go up and down completely randomly.

Pair Corralation between Digital Power and Korean Reinsurance

Assuming the 90 days trading horizon Digital Power is expected to generate 1.83 times less return on investment than Korean Reinsurance. In addition to that, Digital Power is 1.45 times more volatile than Korean Reinsurance Co. It trades about 0.05 of its total potential returns per unit of risk. Korean Reinsurance Co is currently generating about 0.13 per unit of volatility. If you would invest  701,666  in Korean Reinsurance Co on September 22, 2024 and sell it today you would earn a total of  93,334  from holding Korean Reinsurance Co or generate 13.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Digital Power Communications  vs.  Korean Reinsurance Co

 Performance 
       Timeline  
Digital Power Commun 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Digital Power Communications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital Power may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Korean Reinsurance 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Korean Reinsurance Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korean Reinsurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Digital Power and Korean Reinsurance Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Digital Power and Korean Reinsurance

The main advantage of trading using opposite Digital Power and Korean Reinsurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digital Power position performs unexpectedly, Korean Reinsurance 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 Korean Reinsurance will offset losses from the drop in Korean Reinsurance's long position.
The idea behind Digital Power Communications and Korean Reinsurance Co 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.

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