Correlation Between HuMC and Dongwoo Farm

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

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

Diversification Opportunities for HuMC and Dongwoo Farm

0.88

Correlation Coefficient

HuMC  Dongwoo Farm

Very poor diversification

The 3 months correlation between HuMC and Dongwoo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding HuMC Co and Dongwoo Farm To in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwoo Farm To and HuMC 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 HuMC Co are associated (or correlated) with Dongwoo Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongwoo Farm To has no effect on the direction of HuMC i.e., HuMC and Dongwoo Farm go up and down completely randomly.

Pair Corralation between HuMC and Dongwoo Farm

Assuming the 90 days trading horizon HuMC Co is expected to generate 0.79 times more return on investment than Dongwoo Farm. However, HuMC Co is 1.27 times less risky than Dongwoo Farm. It trades about -0.15 of its potential returns per unit of risk. Dongwoo Farm To is currently generating about -0.12 per unit of risk. If you would invest  107,300  in HuMC Co on September 2, 2024 and sell it today you would lose (8,100) from holding HuMC Co or give up 7.55% of portfolio value over 90 days.

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

HuMC Co  vs.  Dongwoo Farm To

HuMC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HuMC Co 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.

Dongwoo Farm To

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongwoo Farm To 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 HuMC and Dongwoo Farm

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

The idea behind HuMC Co and Dongwoo Farm To 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 Anywhere module to track or share privately all of your investments from the convenience of any device.