Correlation Between Gyeongnam Steel and Dong A

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

Diversification Opportunities for Gyeongnam Steel and Dong A

0.35

Correlation Coefficient

Gyeongnam Steel  Dong A

Weak diversification

The 3 months correlation between Gyeongnam and Dong is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Gyeongnam Steel Co and Dong A Steel Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong A Steel 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 Dong A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong A Steel has no effect on the direction of Gyeongnam Steel i.e., Gyeongnam Steel and Dong A go up and down completely randomly.

Pair Corralation between Gyeongnam Steel and Dong A

Assuming the 90 days trading horizon Gyeongnam Steel is expected to generate 3.33 times less return on investment than Dong A. But when comparing it to its historical volatility, Gyeongnam Steel Co is 2.16 times less risky than Dong A. It trades about 0.03 of its potential returns per unit of risk. Dong A Steel Technology is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  326,500  in Dong A Steel Technology on August 31, 2024 and sell it today you would earn a total of  16,500  from holding Dong A Steel Technology or generate 5.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Gyeongnam Steel Co  vs.  Dong A Steel Technology

Gyeongnam Steel

Risk-Adjusted Performance

2 of 100

Insignificant

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.

Dong A Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dong A Steel Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dong A may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Gyeongnam Steel and Dong A

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

The idea behind Gyeongnam Steel Co and Dong A Steel Technology 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.