Correlation Between SK Holdings and DRB Industrial

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

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

Diversification Opportunities for SK Holdings and DRB Industrial

0.71

Correlation Coefficient

SK Holdings  DRB Industrial

Poor diversification

The 3 months correlation between 034730 and DRB is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding SK Holdings Co and DRB Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRB Industrial and SK Holdings 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 SK Holdings Co are associated (or correlated) with DRB Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRB Industrial has no effect on the direction of SK Holdings i.e., SK Holdings and DRB Industrial go up and down completely randomly.

Pair Corralation between SK Holdings and DRB Industrial

Assuming the 90 days trading horizon SK Holdings is expected to generate 1.39 times less return on investment than DRB Industrial. But when comparing it to its historical volatility, SK Holdings Co is 1.3 times less risky than DRB Industrial. It trades about 0.01 of its potential returns per unit of risk. DRB Industrial Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  728,804  in DRB Industrial Co on October 23, 2024 and sell it today you would lose (2,804) from holding DRB Industrial Co or give up 0.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

SK Holdings Co  vs.  DRB Industrial Co

SK Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SK Holdings Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SK Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

DRB Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DRB Industrial Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DRB Industrial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SK Holdings and DRB Industrial

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

The idea behind SK Holdings Co and DRB 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.