Correlation Between Taewoong CoLtd and SFA Engineering

Can any of the company-specific risk be diversified away by investing in both Taewoong CoLtd and SFA Engineering 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 Taewoong CoLtd and SFA Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taewoong CoLtd and SFA Engineering, you can compare the effects of market volatilities on Taewoong CoLtd and SFA Engineering 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 Taewoong CoLtd with a short position of SFA Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taewoong CoLtd and SFA Engineering.

Diversification Opportunities for Taewoong CoLtd and SFA Engineering

0.52

Correlation Coefficient

Taewoong CoLtd  SFA Engineering

Very weak diversification

The 3 months correlation between Taewoong and SFA is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Taewoong CoLtd and SFA Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SFA Engineering and Taewoong CoLtd 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 Taewoong CoLtd are associated (or correlated) with SFA Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SFA Engineering has no effect on the direction of Taewoong CoLtd i.e., Taewoong CoLtd and SFA Engineering go up and down completely randomly.

Pair Corralation between Taewoong CoLtd and SFA Engineering

Assuming the 90 days trading horizon Taewoong CoLtd is expected to under-perform the SFA Engineering. In addition to that, Taewoong CoLtd is 1.53 times more volatile than SFA Engineering. It trades about -0.05 of its total potential returns per unit of risk. SFA Engineering is currently generating about -0.04 per unit of volatility. If you would invest  2,477,920  in SFA Engineering on October 12, 2024 and sell it today you would lose (523,920) from holding SFA Engineering or give up 21.14% of portfolio value over 90 days.

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

Taewoong CoLtd  vs.  SFA Engineering

Taewoong CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taewoong CoLtd 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SFA Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SFA Engineering 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Taewoong CoLtd and SFA Engineering

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

The idea behind Taewoong CoLtd and SFA Engineering 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.