Correlation Between Gyeongnam Steel and Dongbu Insurance

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

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

Diversification Opportunities for Gyeongnam Steel and Dongbu Insurance

-0.21

Correlation Coefficient

Gyeongnam Steel  Dongbu Insurance

Very good diversification

The 3 months correlation between Gyeongnam and Dongbu is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Gyeongnam Steel Co and Dongbu Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbu Insurance and Gyeongnam Steel 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 Gyeongnam Steel Co are associated (or correlated) with Dongbu Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbu Insurance has no effect on the direction of Gyeongnam Steel i.e., Gyeongnam Steel and Dongbu Insurance go up and down completely randomly.

Pair Corralation between Gyeongnam Steel and Dongbu Insurance

Assuming the 90 days trading horizon Gyeongnam Steel Co is expected to generate 0.57 times more return on investment than Dongbu Insurance. However, Gyeongnam Steel Co is 1.76 times less risky than Dongbu Insurance. It trades about 0.03 of its potential returns per unit of risk. Dongbu Insurance Co is currently generating about -0.01 per unit of risk. If you would invest  277,000  in Gyeongnam Steel Co on September 5, 2024 and sell it today you would earn a total of  5,500  from holding Gyeongnam Steel Co or generate 1.99% return on investment over 90 days.

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

Gyeongnam Steel Co  vs.  Dongbu Insurance Co

Gyeongnam Steel

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gyeongnam Steel Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Gyeongnam Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dongbu Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gyeongnam Steel and Dongbu Insurance

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

The idea behind Gyeongnam Steel Co and Dongbu Insurance 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.