Correlation Between Jeju Beer and DSC Investment

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

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

Diversification Opportunities for Jeju Beer and DSC Investment

0.08

Correlation Coefficient

Jeju Beer  DSC Investment

Significant diversification

The 3 months correlation between Jeju and DSC is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Jeju Beer Co and DSC Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DSC Investment and Jeju Beer 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 Jeju Beer Co are associated (or correlated) with DSC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DSC Investment has no effect on the direction of Jeju Beer i.e., Jeju Beer and DSC Investment go up and down completely randomly.

Pair Corralation between Jeju Beer and DSC Investment

Assuming the 90 days trading horizon Jeju Beer Co is expected to under-perform the DSC Investment. In addition to that, Jeju Beer is 1.63 times more volatile than DSC Investment. It trades about -0.03 of its total potential returns per unit of risk. DSC Investment is currently generating about -0.02 per unit of volatility. If you would invest  419,500  in DSC Investment on September 27, 2024 and sell it today you would lose (125,000) from holding DSC Investment or give up 29.8% of portfolio value over 90 days.

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

Jeju Beer Co  vs.  DSC Investment

Jeju Beer

Risk-Adjusted Performance

0 of 100

Very Weak

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

DSC Investment

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Jeju Beer and DSC Investment

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

The idea behind Jeju Beer Co and DSC Investment 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.