Correlation Between Daedong Steel and J Steel

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

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

Diversification Opportunities for Daedong Steel and J Steel

0.38

Correlation Coefficient

Daedong Steel  J Steel

Weak diversification

The 3 months correlation between Daedong and 023440 is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Daedong Steel Co and J Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on J Steel and Daedong 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 Daedong Steel Co are associated (or correlated) with J Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of J Steel has no effect on the direction of Daedong Steel i.e., Daedong Steel and J Steel go up and down completely randomly.

Pair Corralation between Daedong Steel and J Steel

Assuming the 90 days trading horizon Daedong Steel Co is expected to generate 0.71 times more return on investment than J Steel. However, Daedong Steel Co is 1.42 times less risky than J Steel. It trades about -0.02 of its potential returns per unit of risk. J Steel Co is currently generating about -0.03 per unit of risk. If you would invest  344,242  in Daedong Steel Co on November 29, 2024 and sell it today you would lose (14,242) from holding Daedong Steel Co or give up 4.14% of portfolio value over 90 days.

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

Daedong Steel Co  vs.  J Steel Co

Daedong Steel

Risk-Adjusted Performance

Very Weak

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

J Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days J Steel 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 Daedong Steel and J Steel

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

The idea behind Daedong Steel Co and J Steel 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.