Correlation Between Incar Financial and Dong-A Steel

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

By analyzing existing cross correlation between Incar Financial Service and Dong A Steel Technology, you can compare the effects of market volatilities on Incar Financial and Dong-A Steel 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 Incar Financial with a short position of Dong-A Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Incar Financial and Dong-A Steel.

Diversification Opportunities for Incar Financial and Dong-A Steel

0.02

Correlation Coefficient

Incar Financial  Dong-A Steel

Significant diversification

The 3 months correlation between Incar and Dong-A is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Incar Financial Service and Dong A Steel Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong A Steel and Incar Financial 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 Incar Financial Service are associated (or correlated) with Dong-A Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong A Steel has no effect on the direction of Incar Financial i.e., Incar Financial and Dong-A Steel go up and down completely randomly.

Pair Corralation between Incar Financial and Dong-A Steel

Assuming the 90 days trading horizon Incar Financial Service is expected to generate 0.66 times more return on investment than Dong-A Steel. However, Incar Financial Service is 1.52 times less risky than Dong-A Steel. It trades about -0.21 of its potential returns per unit of risk. Dong A Steel Technology is currently generating about -0.27 per unit of risk. If you would invest  627,000  in Incar Financial Service on September 28, 2024 and sell it today you would lose (69,000) from holding Incar Financial Service or give up 11.0% of portfolio value over 90 days.

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

Incar Financial Service  vs.  Dong A Steel Technology

Incar Financial Service

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Incar Financial Service are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Incar Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Dong A Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dong A Steel Technology 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 Incar Financial and Dong-A Steel

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

The idea behind Incar Financial Service and Dong A Steel Technology 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.