Correlation Between GM and Dongil Steel

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

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

Diversification Opportunities for GM and Dongil Steel

-0.68

Correlation Coefficient

GM  Dongil Steel

Excellent diversification

The 3 months correlation between GM and Dongil is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Dongil Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongil Steel and GM 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 General Motors are associated (or correlated) with Dongil Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongil Steel has no effect on the direction of GM i.e., GM and Dongil Steel go up and down completely randomly.

Pair Corralation between GM and Dongil Steel

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Dongil Steel. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.07 times less risky than Dongil Steel. The stock trades about -0.06 of its potential returns per unit of risk. The Dongil Steel Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  101,200  in Dongil Steel Co on December 28, 2024 and sell it today you would lose (3,400) from holding Dongil Steel Co or give up 3.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

General Motors  vs.  Dongil Steel Co

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Dongil Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dongil Steel Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dongil Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Dongil Steel

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

The idea behind General Motors and Dongil Steel 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.