Correlation Between Shin Steel and DHP Korea

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

By analyzing existing cross correlation between Shin Steel Co and DHP Korea Co, you can compare the effects of market volatilities on Shin Steel and DHP Korea 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 Shin Steel with a short position of DHP Korea. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shin Steel and DHP Korea.

Diversification Opportunities for Shin Steel and DHP Korea

0.28

Correlation Coefficient

Shin Steel  DHP Korea

Modest diversification

The 3 months correlation between Shin and DHP is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Shin Steel Co and DHP Korea Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DHP Korea and Shin 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 Shin Steel Co are associated (or correlated) with DHP Korea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DHP Korea has no effect on the direction of Shin Steel i.e., Shin Steel and DHP Korea go up and down completely randomly.

Pair Corralation between Shin Steel and DHP Korea

Assuming the 90 days trading horizon Shin Steel Co is expected to under-perform the DHP Korea. But the stock apears to be less risky and, when comparing its historical volatility, Shin Steel Co is 1.65 times less risky than DHP Korea. The stock trades about -0.13 of its potential returns per unit of risk. The DHP Korea Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  612,000  in DHP Korea Co on December 2, 2024 and sell it today you would earn a total of  50,000  from holding DHP Korea Co or generate 8.17% return on investment over 90 days.

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

Shin Steel Co  vs.  DHP Korea Co

Shin Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shin Steel Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shin Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

DHP Korea

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DHP Korea Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DHP Korea sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shin Steel and DHP Korea

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

The idea behind Shin Steel Co and DHP Korea Co 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.