Correlation Between Daechang Steel and Cheryong Industrial

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

Diversification Opportunities for Daechang Steel and Cheryong Industrial

0.62

Correlation Coefficient

Daechang Steel  Cheryong Industrial

Poor diversification

The 3 months correlation between Daechang and Cheryong is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Daechang Steel Co and Cheryong Industrial CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheryong Industrial 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 Cheryong Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheryong Industrial CoLtd has no effect on the direction of Daechang Steel i.e., Daechang Steel and Cheryong Industrial go up and down completely randomly.

Pair Corralation between Daechang Steel and Cheryong Industrial

Assuming the 90 days trading horizon Daechang Steel Co is expected to generate 0.52 times more return on investment than Cheryong Industrial. However, Daechang Steel Co is 1.92 times less risky than Cheryong Industrial. It trades about -0.03 of its potential returns per unit of risk. Cheryong Industrial CoLtd is currently generating about -0.14 per unit of risk. If you would invest  228,500  in Daechang Steel Co on August 31, 2024 and sell it today you would lose (6,000) from holding Daechang Steel Co or give up 2.63% of portfolio value over 90 days.

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

Daechang Steel Co  vs.  Cheryong Industrial CoLtd

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.

Cheryong Industrial CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cheryong Industrial CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Daechang Steel and Cheryong Industrial

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

The idea behind Daechang Steel Co and Cheryong Industrial 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.