Correlation Between Seah Steel and DRGEM

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

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

Diversification Opportunities for Seah Steel and DRGEM

-0.54

Correlation Coefficient

Seah Steel  DRGEM

Excellent diversification

The 3 months correlation between Seah and DRGEM is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Seah Steel Corp and DRGEM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DRGEM and Seah Steel 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 Seah Steel Corp are associated (or correlated) with DRGEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DRGEM has no effect on the direction of Seah Steel i.e., Seah Steel and DRGEM go up and down completely randomly.

Pair Corralation between Seah Steel and DRGEM

Assuming the 90 days trading horizon Seah Steel Corp is expected to generate 2.38 times more return on investment than DRGEM. However, Seah Steel is 2.38 times more volatile than DRGEM. It trades about 0.25 of its potential returns per unit of risk. DRGEM is currently generating about -0.09 per unit of risk. If you would invest  11,626,300  in Seah Steel Corp on December 30, 2024 and sell it today you would earn a total of  6,673,700  from holding Seah Steel Corp or generate 57.4% return on investment over 90 days.

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

Seah Steel Corp  vs.  DRGEM

Seah Steel Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Seah Steel Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Seah Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

DRGEM

Risk-Adjusted Performance

Very Weak

Over the last 90 days DRGEM 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 Seah Steel and DRGEM

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

The idea behind Seah Steel Corp and DRGEM 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.