Correlation Between Coloray International and Dong A

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

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

Diversification Opportunities for Coloray International and Dong A

0.4

Correlation Coefficient

Coloray International  Dong A

Very weak diversification

The 3 months correlation between Coloray and Dong is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Coloray International Investme 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 Coloray International 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 Coloray International Investment 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 Coloray International i.e., Coloray International and Dong A go up and down completely randomly.

Pair Corralation between Coloray International and Dong A

Assuming the 90 days trading horizon Coloray International Investment is expected to generate 1.61 times more return on investment than Dong A. However, Coloray International is 1.61 times more volatile than Dong A Steel Technology. It trades about 0.22 of its potential returns per unit of risk. Dong A Steel Technology is currently generating about 0.03 per unit of risk. If you would invest  58,500  in Coloray International Investment on December 24, 2024 and sell it today you would earn a total of  26,000  from holding Coloray International Investment or generate 44.44% return on investment over 90 days.

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

Coloray International Investme  vs.  Dong A Steel Technology

Coloray International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Coloray International Investment are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Coloray International sustained solid returns over the last few months and may actually be approaching a breakup point.

Dong A Steel

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dong A Steel Technology are ranked lower than 2 (%) 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 Coloray International and Dong A

The main advantage of trading using opposite Coloray International and Dong A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coloray International 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 Coloray International Investment 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.

Check out your portfolio center.

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.