Correlation Between Hyundai Heavy and Daewoo Shipbuilding

Can any of the company-specific risk be diversified away by investing in both Hyundai Heavy and Daewoo Shipbuilding 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 Shipbuilding 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 Shipbuilding, you can compare the effects of market volatilities on Hyundai Heavy and Daewoo Shipbuilding 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 Shipbuilding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hyundai Heavy and Daewoo Shipbuilding.

Diversification Opportunities for Hyundai Heavy and Daewoo Shipbuilding

0.5

Correlation Coefficient

Hyundai Heavy  Daewoo Shipbuilding

Very weak diversification

The 3 months correlation between Hyundai and Daewoo is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Hyundai Heavy Industries and Daewoo Shipbuilding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daewoo Shipbuilding 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 Shipbuilding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daewoo Shipbuilding has no effect on the direction of Hyundai Heavy i.e., Hyundai Heavy and Daewoo Shipbuilding go up and down completely randomly.

Pair Corralation between Hyundai Heavy and Daewoo Shipbuilding

Assuming the 90 days trading horizon Hyundai Heavy is expected to generate 16.07 times less return on investment than Daewoo Shipbuilding. But when comparing it to its historical volatility, Hyundai Heavy Industries is 1.26 times less risky than Daewoo Shipbuilding. It trades about 0.02 of its potential returns per unit of risk. Daewoo Shipbuilding is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  3,690,000  in Daewoo Shipbuilding on December 27, 2024 and sell it today you would earn a total of  3,350,000  from holding Daewoo Shipbuilding or generate 90.79% return on investment over 90 days.

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

Hyundai Heavy Industries  vs.  Daewoo Shipbuilding

Hyundai Heavy Industries

Risk-Adjusted Performance

Very Weak

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

Daewoo Shipbuilding

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Daewoo Shipbuilding are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daewoo Shipbuilding sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hyundai Heavy and Daewoo Shipbuilding

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

The idea behind Hyundai Heavy Industries and Daewoo Shipbuilding 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.