Correlation Between Doosan Fuel and Hwasung Industrial

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

By analyzing existing cross correlation between Doosan Fuel Cell and Hwasung Industrial Co, you can compare the effects of market volatilities on Doosan Fuel and Hwasung Industrial 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 Doosan Fuel with a short position of Hwasung Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Doosan Fuel and Hwasung Industrial.

Diversification Opportunities for Doosan Fuel and Hwasung Industrial

0.2

Correlation Coefficient

Doosan Fuel  Hwasung Industrial

Modest diversification

The 3 months correlation between Doosan and Hwasung is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Doosan Fuel Cell and Hwasung Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hwasung Industrial and Doosan Fuel 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 Doosan Fuel Cell are associated (or correlated) with Hwasung Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hwasung Industrial has no effect on the direction of Doosan Fuel i.e., Doosan Fuel and Hwasung Industrial go up and down completely randomly.

Pair Corralation between Doosan Fuel and Hwasung Industrial

Assuming the 90 days trading horizon Doosan Fuel Cell is expected to under-perform the Hwasung Industrial. In addition to that, Doosan Fuel is 1.32 times more volatile than Hwasung Industrial Co. It trades about -0.11 of its total potential returns per unit of risk. Hwasung Industrial Co is currently generating about 0.02 per unit of volatility. If you would invest  951,000  in Hwasung Industrial Co on December 25, 2024 and sell it today you would earn a total of  9,000  from holding Hwasung Industrial Co or generate 0.95% return on investment over 90 days.

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

Doosan Fuel Cell  vs.  Hwasung Industrial Co

Doosan Fuel Cell

Risk-Adjusted Performance

Very Weak

Over the last 90 days Doosan Fuel Cell 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.

Hwasung Industrial

Risk-Adjusted Performance

Weak

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

Pair Trading with Doosan Fuel and Hwasung Industrial

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

The idea behind Doosan Fuel Cell and Hwasung Industrial 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.