Correlation Between Daechang Steel and Nature

Can any of the company-specific risk be diversified away by investing in both Daechang Steel and Nature 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 Nature 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 Nature and Environment, you can compare the effects of market volatilities on Daechang Steel and Nature 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 Nature. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daechang Steel and Nature.

Diversification Opportunities for Daechang Steel and Nature

0.61

Correlation Coefficient

Daechang Steel  Nature

Poor diversification

The 3 months correlation between Daechang and Nature is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Daechang Steel Co and Nature and Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nature and Environment 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 Nature. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nature and Environment has no effect on the direction of Daechang Steel i.e., Daechang Steel and Nature go up and down completely randomly.

Pair Corralation between Daechang Steel and Nature

Assuming the 90 days trading horizon Daechang Steel Co is expected to under-perform the Nature. But the stock apears to be less risky and, when comparing its historical volatility, Daechang Steel Co is 2.0 times less risky than Nature. The stock trades about -0.08 of its potential returns per unit of risk. The Nature and Environment is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  59,000  in Nature and Environment on September 21, 2024 and sell it today you would earn a total of  1,300  from holding Nature and Environment or generate 2.2% return on investment over 90 days.

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

Daechang Steel Co  vs.  Nature and Environment

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.

Nature and Environment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nature and Environment 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 Nature

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

The idea behind Daechang Steel Co and Nature and Environment 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.