Correlation Between Dong A and Hyundai Heavy

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

Diversification Opportunities for Dong A and Hyundai Heavy

-0.26

Correlation Coefficient

Dong A  Hyundai Heavy

Very good diversification

The 3 months correlation between Dong and Hyundai is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Steel Technology and Hyundai Heavy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Heavy Industries 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 Hyundai Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Heavy Industries has no effect on the direction of Dong A i.e., Dong A and Hyundai Heavy go up and down completely randomly.

Pair Corralation between Dong A and Hyundai Heavy

Assuming the 90 days trading horizon Dong A Steel Technology is expected to under-perform the Hyundai Heavy. In addition to that, Dong A is 2.07 times more volatile than Hyundai Heavy Industries. It trades about -0.01 of its total potential returns per unit of risk. Hyundai Heavy Industries is currently generating about 0.21 per unit of volatility. If you would invest  7,180,000  in Hyundai Heavy Industries on October 6, 2024 and sell it today you would earn a total of  1,240,000  from holding Hyundai Heavy Industries or generate 17.27% return on investment over 90 days.

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

Dong A Steel Technology  vs.  Hyundai Heavy Industries

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.

Hyundai Heavy Industries

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hyundai Heavy Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hyundai Heavy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Dong A and Hyundai Heavy

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

The idea behind Dong A Steel Technology and Hyundai Heavy Industries 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.