Correlation Between Dongwoo Farm and Woorim Machinery

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

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

Diversification Opportunities for Dongwoo Farm and Woorim Machinery

0.61

Correlation Coefficient

Dongwoo Farm  Woorim Machinery

Poor diversification

The 3 months correlation between Dongwoo and Woorim is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dongwoo Farm To and Woorim Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woorim Machinery and Dongwoo Farm 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 Dongwoo Farm To are associated (or correlated) with Woorim Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woorim Machinery has no effect on the direction of Dongwoo Farm i.e., Dongwoo Farm and Woorim Machinery go up and down completely randomly.

Pair Corralation between Dongwoo Farm and Woorim Machinery

Assuming the 90 days trading horizon Dongwoo Farm To is expected to generate 0.35 times more return on investment than Woorim Machinery. However, Dongwoo Farm To is 2.82 times less risky than Woorim Machinery. It trades about -0.04 of its potential returns per unit of risk. Woorim Machinery Co is currently generating about -0.04 per unit of risk. If you would invest  199,600  in Dongwoo Farm To on September 18, 2024 and sell it today you would lose (7,000) from holding Dongwoo Farm To or give up 3.51% of portfolio value over 90 days.

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

Dongwoo Farm To  vs.  Woorim Machinery Co

Dongwoo Farm To

Risk-Adjusted Performance

0 of 100

Very Weak

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

Woorim Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woorim Machinery Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Dongwoo Farm and Woorim Machinery

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

The idea behind Dongwoo Farm To and Woorim Machinery 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.