Correlation Between Dream Security and Daekyung Machinery

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

By analyzing existing cross correlation between Dream Security co and Daekyung Machinery Engineering, you can compare the effects of market volatilities on Dream Security and Daekyung Machinery 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 Dream Security with a short position of Daekyung Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dream Security and Daekyung Machinery.

Diversification Opportunities for Dream Security and Daekyung Machinery

-0.4

Correlation Coefficient

Dream Security  Daekyung Machinery

Very good diversification

The 3 months correlation between Dream and Daekyung is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dream Security co and Daekyung Machinery Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daekyung Machinery and Dream Security 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 Dream Security co are associated (or correlated) with Daekyung Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daekyung Machinery has no effect on the direction of Dream Security i.e., Dream Security and Daekyung Machinery go up and down completely randomly.

Pair Corralation between Dream Security and Daekyung Machinery

Assuming the 90 days trading horizon Dream Security is expected to generate 1.96 times less return on investment than Daekyung Machinery. But when comparing it to its historical volatility, Dream Security co is 1.3 times less risky than Daekyung Machinery. It trades about 0.07 of its potential returns per unit of risk. Daekyung Machinery Engineering is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  44,200  in Daekyung Machinery Engineering on September 3, 2024 and sell it today you would earn a total of  7,300  from holding Daekyung Machinery Engineering or generate 16.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.92%
Values	Daily Returns

Dream Security co  vs.  Daekyung Machinery Engineering

Dream Security co

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dream Security co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dream Security may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Daekyung Machinery

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Dream Security and Daekyung Machinery

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

The idea behind Dream Security co and Daekyung Machinery Engineering 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.