Correlation Between Ray and Wonil Special

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

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

Diversification Opportunities for Ray and Wonil Special

-0.05

Correlation Coefficient

Ray  Wonil Special

Good diversification

The 3 months correlation between Ray and Wonil is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ray Co and Wonil Special Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wonil Special Steel and Ray 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 Ray Co are associated (or correlated) with Wonil Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wonil Special Steel has no effect on the direction of Ray i.e., Ray and Wonil Special go up and down completely randomly.

Pair Corralation between Ray and Wonil Special

Assuming the 90 days trading horizon Ray Co is expected to generate 5.25 times more return on investment than Wonil Special. However, Ray is 5.25 times more volatile than Wonil Special Steel. It trades about 0.15 of its potential returns per unit of risk. Wonil Special Steel is currently generating about -0.04 per unit of risk. If you would invest  582,000  in Ray Co on December 30, 2024 and sell it today you would earn a total of  218,000  from holding Ray Co or generate 37.46% return on investment over 90 days.

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

Ray Co  vs.  Wonil Special Steel

Ray Co

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ray Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ray sustained solid returns over the last few months and may actually be approaching a breakup point.

Wonil Special Steel

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Ray and Wonil Special

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

The idea behind Ray Co and Wonil Special Steel 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.