Correlation Between Gyeongnam Steel and Doosan Heavy

Can any of the company-specific risk be diversified away by investing in both Gyeongnam Steel and Doosan Heavy 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 Doosan Heavy 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 Doosan Heavy Ind, you can compare the effects of market volatilities on Gyeongnam Steel and Doosan Heavy 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 Doosan Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gyeongnam Steel and Doosan Heavy.

Diversification Opportunities for Gyeongnam Steel and Doosan Heavy

-0.48

Correlation Coefficient

Gyeongnam Steel  Doosan Heavy

Very good diversification

The 3 months correlation between Gyeongnam and Doosan is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Gyeongnam Steel Co and Doosan Heavy Ind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Doosan Heavy Ind 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 Doosan Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Doosan Heavy Ind has no effect on the direction of Gyeongnam Steel i.e., Gyeongnam Steel and Doosan Heavy go up and down completely randomly.

Pair Corralation between Gyeongnam Steel and Doosan Heavy

Assuming the 90 days trading horizon Gyeongnam Steel Co is expected to generate 2.77 times more return on investment than Doosan Heavy. However, Gyeongnam Steel is 2.77 times more volatile than Doosan Heavy Ind. It trades about 0.25 of its potential returns per unit of risk. Doosan Heavy Ind is currently generating about -0.22 per unit of risk. If you would invest  307,500  in Gyeongnam Steel Co on September 22, 2024 and sell it today you would earn a total of  164,500  from holding Gyeongnam Steel Co or generate 53.5% return on investment over 90 days.

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

Gyeongnam Steel Co  vs.  Doosan Heavy Ind

Gyeongnam Steel

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gyeongnam Steel Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gyeongnam Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Doosan Heavy Ind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Doosan Heavy Ind has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Doosan Heavy 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 Doosan Heavy

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

The idea behind Gyeongnam Steel Co and Doosan Heavy Ind 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.