Correlation Between Tplex and Daedong Steel

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

By analyzing existing cross correlation between Tplex Co and Daedong Steel Co, you can compare the effects of market volatilities on Tplex and Daedong Steel 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 Tplex with a short position of Daedong Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tplex and Daedong Steel.

Diversification Opportunities for Tplex and Daedong Steel

0.03

Correlation Coefficient

Tplex  Daedong Steel

Significant diversification

The 3 months correlation between Tplex and Daedong is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Tplex Co and Daedong Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daedong Steel and Tplex 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 Tplex Co are associated (or correlated) with Daedong Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daedong Steel has no effect on the direction of Tplex i.e., Tplex and Daedong Steel go up and down completely randomly.

Pair Corralation between Tplex and Daedong Steel

Assuming the 90 days trading horizon Tplex Co is expected to generate 1.05 times more return on investment than Daedong Steel. However, Tplex is 1.05 times more volatile than Daedong Steel Co. It trades about 0.0 of its potential returns per unit of risk. Daedong Steel Co is currently generating about -0.01 per unit of risk. If you would invest  395,873  in Tplex Co on November 20, 2024 and sell it today you would lose (83,373) from holding Tplex Co or give up 21.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Tplex Co  vs.  Daedong Steel Co

Tplex

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tplex Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tplex sustained solid returns over the last few months and may actually be approaching a breakup point.

Daedong Steel

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Tplex and Daedong Steel

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

The idea behind Tplex Co and Daedong Steel Co 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.