Correlation Between Daehan Steel and Hankuk Steel

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

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

Diversification Opportunities for Daehan Steel and Hankuk Steel

0.84

Correlation Coefficient

Daehan Steel  Hankuk Steel

Very poor diversification

The 3 months correlation between Daehan and Hankuk is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Daehan Steel and Hankuk Steel Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hankuk Steel Wire and Daehan 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 Daehan Steel are associated (or correlated) with Hankuk Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hankuk Steel Wire has no effect on the direction of Daehan Steel i.e., Daehan Steel and Hankuk Steel go up and down completely randomly.

Pair Corralation between Daehan Steel and Hankuk Steel

Assuming the 90 days trading horizon Daehan Steel is expected to generate 2.64 times less return on investment than Hankuk Steel. But when comparing it to its historical volatility, Daehan Steel is 2.47 times less risky than Hankuk Steel. It trades about 0.18 of its potential returns per unit of risk. Hankuk Steel Wire is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  279,000  in Hankuk Steel Wire on October 24, 2024 and sell it today you would earn a total of  181,000  from holding Hankuk Steel Wire or generate 64.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Daehan Steel  vs.  Hankuk Steel Wire

Daehan Steel

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daehan Steel are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daehan Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Hankuk Steel Wire

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hankuk Steel Wire are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hankuk Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daehan Steel and Hankuk Steel

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

The idea behind Daehan Steel and Hankuk Steel Wire 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.