Correlation Between Solution Advanced and Dong A

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

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

Diversification Opportunities for Solution Advanced and Dong A

0.25

Correlation Coefficient

Solution Advanced  Dong A

Modest diversification

The 3 months correlation between Solution and Dong is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Solution Advanced Technology and Dong A Steel Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong A Steel and Solution Advanced 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 Solution Advanced Technology are associated (or correlated) with Dong A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong A Steel has no effect on the direction of Solution Advanced i.e., Solution Advanced and Dong A go up and down completely randomly.

Pair Corralation between Solution Advanced and Dong A

Assuming the 90 days trading horizon Solution Advanced Technology is expected to under-perform the Dong A. But the stock apears to be less risky and, when comparing its historical volatility, Solution Advanced Technology is 1.24 times less risky than Dong A. The stock trades about -0.06 of its potential returns per unit of risk. The Dong A Steel Technology is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  314,159  in Dong A Steel Technology on October 23, 2024 and sell it today you would earn a total of  841.00  from holding Dong A Steel Technology or generate 0.27% return on investment over 90 days.

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

Solution Advanced Technology  vs.  Dong A Steel Technology

Solution Advanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solution Advanced Technology 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.

Dong A Steel

Risk-Adjusted Performance

1 of 100

Insignificant

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

Pair Trading with Solution Advanced and Dong A

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

The idea behind Solution Advanced Technology and Dong A Steel Technology 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.