Correlation Between KMH Hitech and Dongnam Chemical

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

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

Diversification Opportunities for KMH Hitech and Dongnam Chemical

0.58

Correlation Coefficient

KMH Hitech  Dongnam Chemical

Very weak diversification

The 3 months correlation between KMH and Dongnam is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding KMH Hitech Co and Dongnam Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongnam Chemical and KMH Hitech 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 KMH Hitech Co are associated (or correlated) with Dongnam Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongnam Chemical has no effect on the direction of KMH Hitech i.e., KMH Hitech and Dongnam Chemical go up and down completely randomly.

Pair Corralation between KMH Hitech and Dongnam Chemical

Assuming the 90 days trading horizon KMH Hitech is expected to generate 2.04 times less return on investment than Dongnam Chemical. In addition to that, KMH Hitech is 1.31 times more volatile than Dongnam Chemical Co. It trades about 0.18 of its total potential returns per unit of risk. Dongnam Chemical Co is currently generating about 0.49 per unit of volatility. If you would invest  3,105,626  in Dongnam Chemical Co on October 21, 2024 and sell it today you would earn a total of  319,374  from holding Dongnam Chemical Co or generate 10.28% return on investment over 90 days.

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

KMH Hitech Co  vs.  Dongnam Chemical Co

KMH Hitech

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongnam Chemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dongnam Chemical Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongnam Chemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with KMH Hitech and Dongnam Chemical

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

The idea behind KMH Hitech Co and Dongnam Chemical 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.