Correlation Between Dong-A Steel and Synopex

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

Diversification Opportunities for Dong-A Steel and Synopex

0.02

Correlation Coefficient

Dong-A Steel  Synopex

Significant diversification

The 3 months correlation between Dong-A and Synopex is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Steel Technology and Synopex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synopex 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 Synopex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synopex has no effect on the direction of Dong-A Steel i.e., Dong-A Steel and Synopex go up and down completely randomly.

Pair Corralation between Dong-A Steel and Synopex

Assuming the 90 days trading horizon Dong A Steel Technology is expected to under-perform the Synopex. But the stock apears to be less risky and, when comparing its historical volatility, Dong A Steel Technology is 1.17 times less risky than Synopex. The stock trades about -0.17 of its potential returns per unit of risk. The Synopex is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  604,761  in Synopex on September 30, 2024 and sell it today you would earn a total of  6,239  from holding Synopex or generate 1.03% return on investment over 90 days.

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

Dong A Steel Technology  vs.  Synopex

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.

Synopex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Synopex 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 Dong-A Steel and Synopex

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

The idea behind Dong A Steel Technology and Synopex 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.