Correlation Between DRGEM and DHP Korea

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

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

Diversification Opportunities for DRGEM and DHP Korea

0.81

Correlation Coefficient

DRGEM  DHP Korea

Very poor diversification

The 3 months correlation between DRGEM and DHP is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding DRGEM and DHP Korea Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DHP Korea and DRGEM 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 DRGEM 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 DRGEM i.e., DRGEM and DHP Korea go up and down completely randomly.

Pair Corralation between DRGEM and DHP Korea

Assuming the 90 days trading horizon DRGEM is expected to under-perform the DHP Korea. But the stock apears to be less risky and, when comparing its historical volatility, DRGEM is 1.29 times less risky than DHP Korea. The stock trades about -0.22 of its potential returns per unit of risk. The DHP Korea Co is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  651,000  in DHP Korea Co on September 4, 2024 and sell it today you would lose (124,000) from holding DHP Korea Co or give up 19.05% of portfolio value over 90 days.

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

DRGEM  vs.  DHP Korea Co

DRGEM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DRGEM has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

DHP Korea

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DHP Korea Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with DRGEM and DHP Korea

The main advantage of trading using opposite DRGEM and DHP Korea positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DRGEM 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 DRGEM 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.