Correlation Between Dong A and Doosan Pref

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

By analyzing existing cross correlation between Dong A Steel Technology and Doosan Pref Shs, you can compare the effects of market volatilities on Dong A and Doosan Pref 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 Dong A with a short position of Doosan Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dong A and Doosan Pref.

Diversification Opportunities for Dong A and Doosan Pref

0.53

Correlation Coefficient

Dong A  Doosan Pref

Very weak diversification

The 3 months correlation between Dong and Doosan is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Steel Technology and Doosan Pref Shs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Doosan Pref Shs and Dong A 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 Dong A Steel Technology are associated (or correlated) with Doosan Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Doosan Pref Shs has no effect on the direction of Dong A i.e., Dong A and Doosan Pref go up and down completely randomly.

Pair Corralation between Dong A and Doosan Pref

Assuming the 90 days trading horizon Dong A is expected to generate 10.63 times less return on investment than Doosan Pref. But when comparing it to its historical volatility, Dong A Steel Technology is 2.09 times less risky than Doosan Pref. It trades about 0.03 of its potential returns per unit of risk. Doosan Pref Shs is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  10,760,000  in Doosan Pref Shs on December 23, 2024 and sell it today you would earn a total of  3,970,000  from holding Doosan Pref Shs or generate 36.9% return on investment over 90 days.

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

Dong A Steel Technology  vs.  Doosan Pref Shs

Dong A Steel

Risk-Adjusted Performance

Weak

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

Doosan Pref Shs

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Doosan Pref Shs are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Doosan Pref sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dong A and Doosan Pref

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

The idea behind Dong A Steel Technology and Doosan Pref Shs 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.