Correlation Between PJ Metal and Daedong Metals

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

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

Diversification Opportunities for PJ Metal and Daedong Metals

-0.05

Correlation Coefficient

PJ Metal  Daedong Metals

Good diversification

The 3 months correlation between 128660 and Daedong is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding PJ Metal Co and Daedong Metals Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daedong Metals and PJ Metal 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 PJ Metal Co are associated (or correlated) with Daedong Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daedong Metals has no effect on the direction of PJ Metal i.e., PJ Metal and Daedong Metals go up and down completely randomly.

Pair Corralation between PJ Metal and Daedong Metals

Assuming the 90 days trading horizon PJ Metal is expected to generate 4.74 times less return on investment than Daedong Metals. But when comparing it to its historical volatility, PJ Metal Co is 1.77 times less risky than Daedong Metals. It trades about 0.03 of its potential returns per unit of risk. Daedong Metals Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  661,000  in Daedong Metals Co on December 2, 2024 and sell it today you would earn a total of  48,000  from holding Daedong Metals Co or generate 7.26% return on investment over 90 days.

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

PJ Metal Co  vs.  Daedong Metals Co

PJ Metal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PJ Metal Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PJ Metal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Daedong Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Daedong Metals 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 PJ Metal and Daedong Metals

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

The idea behind PJ Metal Co and Daedong Metals 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.