Correlation Between ABCO Electronics and Dongwon System

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

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

Diversification Opportunities for ABCO Electronics and Dongwon System

0.12

Correlation Coefficient

ABCO Electronics  Dongwon System

Average diversification

The 3 months correlation between ABCO and Dongwon is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding ABCO Electronics Co and Dongwon System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwon System and ABCO Electronics 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 ABCO Electronics Co are associated (or correlated) with Dongwon System. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongwon System has no effect on the direction of ABCO Electronics i.e., ABCO Electronics and Dongwon System go up and down completely randomly.

Pair Corralation between ABCO Electronics and Dongwon System

Assuming the 90 days trading horizon ABCO Electronics Co is expected to under-perform the Dongwon System. But the stock apears to be less risky and, when comparing its historical volatility, ABCO Electronics Co is 1.07 times less risky than Dongwon System. The stock trades about -0.14 of its potential returns per unit of risk. The Dongwon System is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,035,000  in Dongwon System on September 12, 2024 and sell it today you would earn a total of  140,000  from holding Dongwon System or generate 3.47% return on investment over 90 days.

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

ABCO Electronics Co  vs.  Dongwon System

ABCO Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABCO Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Dongwon System

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongwon System are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongwon System may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ABCO Electronics and Dongwon System

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

The idea behind ABCO Electronics Co and Dongwon System 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.