Correlation Between Daechang Steel and Miwon Chemical

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

Diversification Opportunities for Daechang Steel and Miwon Chemical

0.21

Correlation Coefficient

Daechang Steel  Miwon Chemical

Modest diversification

The 3 months correlation between Daechang and Miwon is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Daechang Steel Co and Miwon Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Miwon Chemical 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 Miwon Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Miwon Chemical has no effect on the direction of Daechang Steel i.e., Daechang Steel and Miwon Chemical go up and down completely randomly.

Pair Corralation between Daechang Steel and Miwon Chemical

Assuming the 90 days trading horizon Daechang Steel Co is expected to generate 1.31 times more return on investment than Miwon Chemical. However, Daechang Steel is 1.31 times more volatile than Miwon Chemical. It trades about 0.05 of its potential returns per unit of risk. Miwon Chemical is currently generating about 0.06 per unit of risk. If you would invest  198,000  in Daechang Steel Co on December 26, 2024 and sell it today you would earn a total of  6,000  from holding Daechang Steel Co or generate 3.03% return on investment over 90 days.

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

Daechang Steel Co  vs.  Miwon Chemical

Daechang Steel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Daechang Steel Co are ranked lower than 3 (%) 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.

Miwon Chemical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Miwon Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Daechang Steel and Miwon Chemical

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

The idea behind Daechang Steel Co and Miwon Chemical 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 Global Correlations module to find global opportunities by holding instruments from different markets.