Correlation Between Daechang Steel and Cherrybro CoLtd

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

Diversification Opportunities for Daechang Steel and Cherrybro CoLtd

-0.14

Correlation Coefficient

Daechang Steel  Cherrybro CoLtd

Good diversification

The 3 months correlation between Daechang and Cherrybro is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Daechang Steel Co and Cherrybro coLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cherrybro coLtd 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 Cherrybro CoLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cherrybro coLtd has no effect on the direction of Daechang Steel i.e., Daechang Steel and Cherrybro CoLtd go up and down completely randomly.

Pair Corralation between Daechang Steel and Cherrybro CoLtd

Assuming the 90 days trading horizon Daechang Steel Co is expected to under-perform the Cherrybro CoLtd. But the stock apears to be less risky and, when comparing its historical volatility, Daechang Steel Co is 1.81 times less risky than Cherrybro CoLtd. The stock trades about -0.02 of its potential returns per unit of risk. The Cherrybro coLtd is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  114,300  in Cherrybro coLtd on October 23, 2024 and sell it today you would lose (31,400) from holding Cherrybro coLtd or give up 27.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Daechang Steel Co  vs.  Cherrybro coLtd

Daechang Steel

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daechang Steel Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Cherrybro coLtd

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cherrybro coLtd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cherrybro CoLtd sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daechang Steel and Cherrybro CoLtd

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

The idea behind Daechang Steel Co and Cherrybro 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.