Correlation Between Dong-A Steel and Dongwon System

Can any of the company-specific risk be diversified away by investing in both Dong-A Steel and Dongwon System 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 Steel and Dongwon System 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 Dongwon System, you can compare the effects of market volatilities on Dong-A Steel and Dongwon System 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 Steel with a short position of Dongwon System. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dong-A Steel and Dongwon System.

Diversification Opportunities for Dong-A Steel and Dongwon System

0.32

Correlation Coefficient

Dong-A Steel  Dongwon System

Weak diversification

The 3 months correlation between Dong-A and Dongwon is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Steel Technology and Dongwon System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwon System and Dong-A 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 Dong A Steel Technology are associated (or correlated) with Dongwon System. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongwon System has no effect on the direction of Dong-A Steel i.e., Dong-A Steel and Dongwon System go up and down completely randomly.

Pair Corralation between Dong-A Steel and Dongwon System

Assuming the 90 days trading horizon Dong-A Steel is expected to generate 2.67 times less return on investment than Dongwon System. In addition to that, Dong-A Steel is 1.13 times more volatile than Dongwon System. It trades about 0.01 of its total potential returns per unit of risk. Dongwon System is currently generating about 0.03 per unit of volatility. If you would invest  4,125,000  in Dongwon System on September 15, 2024 and sell it today you would earn a total of  75,000  from holding Dongwon System or generate 1.82% return on investment over 90 days.

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

Dong A Steel Technology  vs.  Dongwon System

Dong A Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongwon System

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dongwon System are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dongwon System is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dong-A Steel and Dongwon System

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

The idea behind Dong A Steel Technology and Dongwon System 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.