Correlation Between Daejung Chemicals and Wave Electronics

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

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

Diversification Opportunities for Daejung Chemicals and Wave Electronics

0.85

Correlation Coefficient

Daejung Chemicals  Wave Electronics

Very poor diversification

The 3 months correlation between Daejung and Wave is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Daejung Chemicals Metals and Wave Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wave Electronics and Daejung Chemicals 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 Daejung Chemicals Metals are associated (or correlated) with Wave Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wave Electronics has no effect on the direction of Daejung Chemicals i.e., Daejung Chemicals and Wave Electronics go up and down completely randomly.

Pair Corralation between Daejung Chemicals and Wave Electronics

Assuming the 90 days trading horizon Daejung Chemicals is expected to generate 1.22 times less return on investment than Wave Electronics. But when comparing it to its historical volatility, Daejung Chemicals Metals is 1.28 times less risky than Wave Electronics. It trades about 0.26 of its potential returns per unit of risk. Wave Electronics Co is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  369,500  in Wave Electronics Co on October 13, 2024 and sell it today you would earn a total of  23,500  from holding Wave Electronics Co or generate 6.36% return on investment over 90 days.

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

Daejung Chemicals Metals  vs.  Wave Electronics Co

Daejung Chemicals Metals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Wave Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wave Electronics 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 Daejung Chemicals and Wave Electronics

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

The idea behind Daejung Chemicals Metals and Wave Electronics 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 Transaction History module to view history of all your transactions and understand their impact on performance.