Correlation Between Miwon Chemical and Digital Power

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

By analyzing existing cross correlation between Miwon Chemical and Digital Power Communications, you can compare the effects of market volatilities on Miwon Chemical and Digital Power 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 Miwon Chemical with a short position of Digital Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Miwon Chemical and Digital Power.

Diversification Opportunities for Miwon Chemical and Digital Power

0.13

Correlation Coefficient

Miwon Chemical  Digital Power

Average diversification

The 3 months correlation between Miwon and Digital is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Miwon Chemical and Digital Power Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Power Commun and Miwon Chemical 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 Miwon Chemical are associated (or correlated) with Digital Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Power Commun has no effect on the direction of Miwon Chemical i.e., Miwon Chemical and Digital Power go up and down completely randomly.

Pair Corralation between Miwon Chemical and Digital Power

Assuming the 90 days trading horizon Miwon Chemical is expected to generate 3.01 times less return on investment than Digital Power. But when comparing it to its historical volatility, Miwon Chemical is 1.57 times less risky than Digital Power. It trades about 0.12 of its potential returns per unit of risk. Digital Power Communications is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  759,000  in Digital Power Communications on September 21, 2024 and sell it today you would earn a total of  80,000  from holding Digital Power Communications or generate 10.54% return on investment over 90 days.

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

Miwon Chemical  vs.  Digital Power Communications

Miwon Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Digital Power Commun

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Power Communications are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital Power may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Miwon Chemical and Digital Power

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

The idea behind Miwon Chemical and Digital Power Communications 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.