Correlation Between Dong A and Jeong Moon

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

Diversification Opportunities for Dong A and Jeong Moon

0.7

Correlation Coefficient

Dong A  Jeong Moon

Poor diversification

The 3 months correlation between Dong and Jeong is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Steel Technology and Jeong Moon Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jeong Moon Information 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 Jeong Moon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jeong Moon Information has no effect on the direction of Dong A i.e., Dong A and Jeong Moon go up and down completely randomly.

Pair Corralation between Dong A and Jeong Moon

Assuming the 90 days trading horizon Dong A Steel Technology is expected to generate 1.5 times more return on investment than Jeong Moon. However, Dong A is 1.5 times more volatile than Jeong Moon Information. It trades about -0.01 of its potential returns per unit of risk. Jeong Moon Information is currently generating about -0.1 per unit of risk. If you would invest  308,850  in Dong A Steel Technology on October 6, 2024 and sell it today you would lose (16,350) from holding Dong A Steel Technology or give up 5.29% of portfolio value over 90 days.

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

Dong A Steel Technology  vs.  Jeong Moon Information

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 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jeong Moon Information

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jeong Moon Information 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 and Jeong Moon

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

The idea behind Dong A Steel Technology and Jeong Moon Information 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 Global Correlations module to find global opportunities by holding instruments from different markets.