Correlation Between Dong A and Paradise

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

By analyzing existing cross correlation between Dong A Eltek and Paradise Co, you can compare the effects of market volatilities on Dong A and Paradise 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 Paradise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dong A and Paradise.

Diversification Opportunities for Dong A and Paradise

-0.47

Correlation Coefficient

Dong A  Paradise

Very good diversification

The 3 months correlation between Dong and Paradise is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Eltek and Paradise Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradise 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 Eltek are associated (or correlated) with Paradise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradise has no effect on the direction of Dong A i.e., Dong A and Paradise go up and down completely randomly.

Pair Corralation between Dong A and Paradise

Assuming the 90 days trading horizon Dong A Eltek is expected to under-perform the Paradise. In addition to that, Dong A is 1.33 times more volatile than Paradise Co. It trades about -0.16 of its total potential returns per unit of risk. Paradise Co is currently generating about 0.14 per unit of volatility. If you would invest  994,671  in Paradise Co on November 28, 2024 and sell it today you would earn a total of  135,329  from holding Paradise Co or generate 13.61% return on investment over 90 days.

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

Dong A Eltek  vs.  Paradise Co

Dong A Eltek

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dong A Eltek 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 March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Paradise

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paradise Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Paradise sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dong A and Paradise

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

The idea behind Dong A Eltek and Paradise 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.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .