Correlation Between Daehan Steel and Organic Tea

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

By analyzing existing cross correlation between Daehan Steel and Organic Tea Cosmetics, you can compare the effects of market volatilities on Daehan Steel and Organic Tea 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 Organic Tea. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daehan Steel and Organic Tea.

Diversification Opportunities for Daehan Steel and Organic Tea

0.41

Correlation Coefficient

Daehan Steel  Organic Tea

Very weak diversification

The 3 months correlation between Daehan and Organic is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Daehan Steel and Organic Tea Cosmetics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Organic Tea Cosmetics 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 Organic Tea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Organic Tea Cosmetics has no effect on the direction of Daehan Steel i.e., Daehan Steel and Organic Tea go up and down completely randomly.

Pair Corralation between Daehan Steel and Organic Tea

Assuming the 90 days trading horizon Daehan Steel is expected to generate 0.64 times more return on investment than Organic Tea. However, Daehan Steel is 1.56 times less risky than Organic Tea. It trades about 0.01 of its potential returns per unit of risk. Organic Tea Cosmetics is currently generating about -0.26 per unit of risk. If you would invest  1,614,150  in Daehan Steel on December 24, 2024 and sell it today you would earn a total of  5,850  from holding Daehan Steel or generate 0.36% return on investment over 90 days.

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

Daehan Steel  vs.  Organic Tea Cosmetics

Daehan Steel

Risk-Adjusted Performance

Very Weak

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

Organic Tea Cosmetics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Organic Tea Cosmetics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Daehan Steel and Organic Tea

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

The idea behind Daehan Steel and Organic Tea Cosmetics 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.