Correlation Between Daewoo Engineering and Air Busan

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

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

Diversification Opportunities for Daewoo Engineering and Air Busan

0.01

Correlation Coefficient

Daewoo Engineering  Air Busan

Significant diversification

The 3 months correlation between Daewoo and Air is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Daewoo Engineering Constructio and Air Busan Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Busan and Daewoo Engineering 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 Daewoo Engineering Construction are associated (or correlated) with Air Busan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Busan has no effect on the direction of Daewoo Engineering i.e., Daewoo Engineering and Air Busan go up and down completely randomly.

Pair Corralation between Daewoo Engineering and Air Busan

Assuming the 90 days trading horizon Daewoo Engineering Construction is expected to generate 1.83 times more return on investment than Air Busan. However, Daewoo Engineering is 1.83 times more volatile than Air Busan Co. It trades about 0.04 of its potential returns per unit of risk. Air Busan Co is currently generating about -0.15 per unit of risk. If you would invest  310,500  in Daewoo Engineering Construction on December 30, 2024 and sell it today you would earn a total of  10,500  from holding Daewoo Engineering Construction or generate 3.38% return on investment over 90 days.

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

Daewoo Engineering Constructio  vs.  Air Busan Co

Daewoo Engineering

Risk-Adjusted Performance

Weak

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

Air Busan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Busan Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Daewoo Engineering and Air Busan

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

The idea behind Daewoo Engineering Construction and Air Busan 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.