Correlation Between Daechang Steel and Daiyang Metal

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

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

Diversification Opportunities for Daechang Steel and Daiyang Metal

0.26

Correlation Coefficient

Daechang Steel  Daiyang Metal

Modest diversification

The 3 months correlation between Daechang and Daiyang is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Daechang Steel Co and Daiyang Metal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daiyang Metal and Daechang Steel 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 Daechang Steel Co are associated (or correlated) with Daiyang Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daiyang Metal has no effect on the direction of Daechang Steel i.e., Daechang Steel and Daiyang Metal go up and down completely randomly.

Pair Corralation between Daechang Steel and Daiyang Metal

Assuming the 90 days trading horizon Daechang Steel Co is expected to generate 0.61 times more return on investment than Daiyang Metal. However, Daechang Steel Co is 1.65 times less risky than Daiyang Metal. It trades about -0.03 of its potential returns per unit of risk. Daiyang Metal Co is currently generating about -0.06 per unit of risk. If you would invest  225,500  in Daechang Steel Co on September 22, 2024 and sell it today you would lose (9,500) from holding Daechang Steel Co or give up 4.21% of portfolio value over 90 days.

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

Daechang Steel Co  vs.  Daiyang Metal Co

Daechang Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Daiyang Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daiyang Metal 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 Daechang Steel and Daiyang Metal

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

The idea behind Daechang Steel Co and Daiyang Metal 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..