Correlation Between Dragonfly and Busan Industrial

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

By analyzing existing cross correlation between Dragonfly GF Co and Busan Industrial Co, you can compare the effects of market volatilities on Dragonfly and Busan Industrial 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 Dragonfly with a short position of Busan Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dragonfly and Busan Industrial.

Diversification Opportunities for Dragonfly and Busan Industrial

0.51

Correlation Coefficient

Dragonfly  Busan Industrial

Very weak diversification

The 3 months correlation between Dragonfly and Busan is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Dragonfly GF Co and Busan Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Busan Industrial and Dragonfly 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 Dragonfly GF Co are associated (or correlated) with Busan Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Busan Industrial has no effect on the direction of Dragonfly i.e., Dragonfly and Busan Industrial go up and down completely randomly.

Pair Corralation between Dragonfly and Busan Industrial

Assuming the 90 days trading horizon Dragonfly is expected to generate 1.43 times less return on investment than Busan Industrial. In addition to that, Dragonfly is 1.35 times more volatile than Busan Industrial Co. It trades about 0.06 of its total potential returns per unit of risk. Busan Industrial Co is currently generating about 0.12 per unit of volatility. If you would invest  5,551,483  in Busan Industrial Co on October 23, 2024 and sell it today you would earn a total of  2,288,517  from holding Busan Industrial Co or generate 41.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	75.41%
Values	Daily Returns

Dragonfly GF Co  vs.  Busan Industrial Co

Dragonfly GF

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dragonfly GF Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dragonfly sustained solid returns over the last few months and may actually be approaching a breakup point.

Busan Industrial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Busan Industrial Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Busan Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dragonfly and Busan Industrial

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

The idea behind Dragonfly GF Co and Busan Industrial 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.