Correlation Between Dream Security and Dongnam Chemical

Can any of the company-specific risk be diversified away by investing in both Dream Security and Dongnam 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 Dream Security and Dongnam Chemical 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 Dongnam Chemical Co, you can compare the effects of market volatilities on Dream Security and Dongnam 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 Dream Security with a short position of Dongnam Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dream Security and Dongnam Chemical.

Diversification Opportunities for Dream Security and Dongnam Chemical

0.53

Correlation Coefficient

Dream Security  Dongnam Chemical

Very weak diversification

The 3 months correlation between Dream and Dongnam is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Dream Security co and Dongnam Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongnam Chemical 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 Dongnam Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongnam Chemical has no effect on the direction of Dream Security i.e., Dream Security and Dongnam Chemical go up and down completely randomly.

Pair Corralation between Dream Security and Dongnam Chemical

Assuming the 90 days trading horizon Dream Security co is expected to generate 2.38 times more return on investment than Dongnam Chemical. However, Dream Security is 2.38 times more volatile than Dongnam Chemical Co. It trades about 0.01 of its potential returns per unit of risk. Dongnam Chemical Co is currently generating about -0.03 per unit of risk. If you would invest  346,000  in Dream Security co on December 1, 2024 and sell it today you would lose (8,000) from holding Dream Security co or give up 2.31% of portfolio value over 90 days.

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

Dream Security co  vs.  Dongnam Chemical Co

Dream Security co

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dream Security co are ranked lower than 2 (%) 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 April 2025.

Dongnam Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongnam Chemical Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongnam Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dream Security and Dongnam Chemical

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

The idea behind Dream Security co and Dongnam Chemical 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.