Correlation Between Top Material and Daehan Steel

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

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

Diversification Opportunities for Top Material and Daehan Steel

-0.82

Correlation Coefficient

Top Material  Daehan Steel

Pay attention - limited upside

The 3 months correlation between Top and Daehan is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Top Material Co and Daehan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daehan Steel and Top Material 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 Top Material Co are associated (or correlated) with Daehan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daehan Steel has no effect on the direction of Top Material i.e., Top Material and Daehan Steel go up and down completely randomly.

Pair Corralation between Top Material and Daehan Steel

Assuming the 90 days trading horizon Top Material is expected to generate 1.23 times less return on investment than Daehan Steel. In addition to that, Top Material is 2.34 times more volatile than Daehan Steel. It trades about 0.02 of its total potential returns per unit of risk. Daehan Steel is currently generating about 0.05 per unit of volatility. If you would invest  1,082,611  in Daehan Steel on October 11, 2024 and sell it today you would earn a total of  536,389  from holding Daehan Steel or generate 49.55% return on investment over 90 days.

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

Top Material Co  vs.  Daehan Steel

Top Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Top Material Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Daehan Steel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daehan Steel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daehan Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Top Material and Daehan Steel

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

The idea behind Top Material Co and Daehan Steel 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.