Correlation Between Microfriend and DongWon Development

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

By analyzing existing cross correlation between Microfriend and DongWon Development CoLtd, you can compare the effects of market volatilities on Microfriend and DongWon Development 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 Microfriend with a short position of DongWon Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microfriend and DongWon Development.

Diversification Opportunities for Microfriend and DongWon Development

0.67

Correlation Coefficient

Microfriend  DongWon Development

Poor diversification

The 3 months correlation between Microfriend and DongWon is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend and DongWon Development CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DongWon Development CoLtd and Microfriend 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 Microfriend are associated (or correlated) with DongWon Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DongWon Development CoLtd has no effect on the direction of Microfriend i.e., Microfriend and DongWon Development go up and down completely randomly.

Pair Corralation between Microfriend and DongWon Development

Assuming the 90 days trading horizon Microfriend is expected to under-perform the DongWon Development. In addition to that, Microfriend is 4.61 times more volatile than DongWon Development CoLtd. It trades about -0.1 of its total potential returns per unit of risk. DongWon Development CoLtd is currently generating about -0.14 per unit of volatility. If you would invest  269,000  in DongWon Development CoLtd on September 26, 2024 and sell it today you would lose (25,500) from holding DongWon Development CoLtd or give up 9.48% of portfolio value over 90 days.

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

Microfriend  vs.  DongWon Development CoLtd

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microfriend 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

DongWon Development CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DongWon Development CoLtd 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 Microfriend and DongWon Development

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

The idea behind Microfriend and DongWon Development 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.