Correlation Between Hyundai Heavy and Daewoo Engineering

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

By analyzing existing cross correlation between Hyundai Heavy Industries and Daewoo Engineering Construction, you can compare the effects of market volatilities on Hyundai Heavy and Daewoo Engineering 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 Hyundai Heavy with a short position of Daewoo Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hyundai Heavy and Daewoo Engineering.

Diversification Opportunities for Hyundai Heavy and Daewoo Engineering

-0.74

Correlation Coefficient

Hyundai Heavy  Daewoo Engineering

Pay attention - limited upside

The 3 months correlation between Hyundai and Daewoo is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Hyundai Heavy Industries and Daewoo Engineering Constructio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daewoo Engineering and Hyundai Heavy 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 Hyundai Heavy Industries are associated (or correlated) with Daewoo Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daewoo Engineering has no effect on the direction of Hyundai Heavy i.e., Hyundai Heavy and Daewoo Engineering go up and down completely randomly.

Pair Corralation between Hyundai Heavy and Daewoo Engineering

Assuming the 90 days trading horizon Hyundai Heavy Industries is expected to under-perform the Daewoo Engineering. In addition to that, Hyundai Heavy is 1.04 times more volatile than Daewoo Engineering Construction. It trades about -0.05 of its total potential returns per unit of risk. Daewoo Engineering Construction is currently generating about 0.02 per unit of volatility. If you would invest  323,500  in Daewoo Engineering Construction on December 25, 2024 and sell it today you would earn a total of  3,500  from holding Daewoo Engineering Construction or generate 1.08% return on investment over 90 days.

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

Hyundai Heavy Industries  vs.  Daewoo Engineering Constructio

Hyundai Heavy Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hyundai Heavy Industries 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.

Daewoo Engineering

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daewoo Engineering Construction are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Daewoo Engineering is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hyundai Heavy and Daewoo Engineering

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

The idea behind Hyundai Heavy Industries and Daewoo Engineering Construction 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.