Correlation Between CG Hi and Daechang Steel

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

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

Diversification Opportunities for CG Hi and Daechang Steel

0.73

Correlation Coefficient

CG Hi  Daechang Steel

Poor diversification

The 3 months correlation between 264660 and Daechang is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding CG Hi Tech and Daechang Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daechang Steel and CG Hi 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 CG Hi Tech are associated (or correlated) with Daechang Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daechang Steel has no effect on the direction of CG Hi i.e., CG Hi and Daechang Steel go up and down completely randomly.

Pair Corralation between CG Hi and Daechang Steel

Assuming the 90 days trading horizon CG Hi Tech is expected to generate 1.4 times more return on investment than Daechang Steel. However, CG Hi is 1.4 times more volatile than Daechang Steel Co. It trades about -0.01 of its potential returns per unit of risk. Daechang Steel Co is currently generating about -0.02 per unit of risk. If you would invest  1,147,244  in CG Hi Tech on October 2, 2024 and sell it today you would lose (216,244) from holding CG Hi Tech or give up 18.85% of portfolio value over 90 days.

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

CG Hi Tech  vs.  Daechang Steel Co

CG Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CG Hi Tech 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.

Daechang Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CG Hi and Daechang Steel

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

The idea behind CG Hi Tech and Daechang Steel 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.