Correlation Between Daedong Steel and Dongil Steel

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

Diversification Opportunities for Daedong Steel and Dongil Steel

0.27

Correlation Coefficient

Daedong Steel  Dongil Steel

Modest diversification

The 3 months correlation between Daedong and Dongil is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Daedong Steel Co and Dongil Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongil 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 Dongil Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongil Steel has no effect on the direction of Daedong Steel i.e., Daedong Steel and Dongil Steel go up and down completely randomly.

Pair Corralation between Daedong Steel and Dongil Steel

Assuming the 90 days trading horizon Daedong Steel Co is expected to generate 1.42 times more return on investment than Dongil Steel. However, Daedong Steel is 1.42 times more volatile than Dongil Steel Co. It trades about -0.09 of its potential returns per unit of risk. Dongil Steel Co is currently generating about -0.24 per unit of risk. If you would invest  366,500  in Daedong Steel Co on September 4, 2024 and sell it today you would lose (18,500) from holding Daedong Steel Co or give up 5.05% 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.  Dongil Steel Co

Daedong Steel

Risk-Adjusted Performance

0 of 100

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 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.

Dongil Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongil 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 Dongil Steel

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

The idea behind Daedong Steel Co and Dongil 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.