Correlation Between Digital Power and Hankook Furniture

Can any of the company-specific risk be diversified away by investing in both Digital Power and Hankook Furniture 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 Hankook Furniture 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 Hankook Furniture Co, you can compare the effects of market volatilities on Digital Power and Hankook Furniture 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 Hankook Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital Power and Hankook Furniture.

Diversification Opportunities for Digital Power and Hankook Furniture

0.6

Correlation Coefficient

Digital Power  Hankook Furniture

Poor diversification

The 3 months correlation between Digital and Hankook is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Digital Power Communications and Hankook Furniture Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hankook Furniture 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 Hankook Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hankook Furniture has no effect on the direction of Digital Power i.e., Digital Power and Hankook Furniture go up and down completely randomly.

Pair Corralation between Digital Power and Hankook Furniture

Assuming the 90 days trading horizon Digital Power is expected to generate 1.2 times less return on investment than Hankook Furniture. In addition to that, Digital Power is 1.46 times more volatile than Hankook Furniture Co. It trades about 0.07 of its total potential returns per unit of risk. Hankook Furniture Co is currently generating about 0.13 per unit of volatility. If you would invest  358,270  in Hankook Furniture Co on October 12, 2024 and sell it today you would earn a total of  43,230  from holding Hankook Furniture Co or generate 12.07% return on investment over 90 days.

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

Digital Power Communications  vs.  Hankook Furniture Co

Digital Power Commun

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Power Communications are ranked lower than 5 (%) 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 February 2025.

Hankook Furniture

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hankook Furniture Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hankook Furniture may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Digital Power and Hankook Furniture

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

The idea behind Digital Power Communications and Hankook Furniture 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.