Correlation Between Finebesteel and DongWon Development

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

By analyzing existing cross correlation between Finebesteel and DongWon Development CoLtd, you can compare the effects of market volatilities on Finebesteel and DongWon Development 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 Finebesteel with a short position of DongWon Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Finebesteel and DongWon Development.

Diversification Opportunities for Finebesteel and DongWon Development

-0.64

Correlation Coefficient

Finebesteel  DongWon Development

Excellent diversification

The 3 months correlation between Finebesteel and DongWon is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Finebesteel and DongWon Development CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DongWon Development CoLtd and Finebesteel 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 Finebesteel are associated (or correlated) with DongWon Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DongWon Development CoLtd has no effect on the direction of Finebesteel i.e., Finebesteel and DongWon Development go up and down completely randomly.

Pair Corralation between Finebesteel and DongWon Development

Assuming the 90 days trading horizon Finebesteel is expected to generate 2.97 times more return on investment than DongWon Development. However, Finebesteel is 2.97 times more volatile than DongWon Development CoLtd. It trades about 0.09 of its potential returns per unit of risk. DongWon Development CoLtd is currently generating about -0.17 per unit of risk. If you would invest  89,700  in Finebesteel on September 3, 2024 and sell it today you would earn a total of  15,000  from holding Finebesteel or generate 16.72% return on investment over 90 days.

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

Finebesteel  vs.  DongWon Development CoLtd

Finebesteel

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Finebesteel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Finebesteel sustained solid returns over the last few months and may actually be approaching a breakup point.

DongWon Development CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DongWon Development CoLtd 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 Finebesteel and DongWon Development

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

The idea behind Finebesteel and DongWon Development CoLtd 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.