Correlation Between SK Hynix and Digital Power

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

By analyzing existing cross correlation between SK Hynix and Digital Power Communications, you can compare the effects of market volatilities on SK Hynix and Digital Power 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 SK Hynix with a short position of Digital Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of SK Hynix and Digital Power.

Diversification Opportunities for SK Hynix and Digital Power

-0.15

Correlation Coefficient

SK Hynix  Digital Power

Good diversification

The 3 months correlation between 000660 and Digital is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding SK Hynix and Digital Power Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Power Commun and SK Hynix 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 SK Hynix are associated (or correlated) with Digital Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Power Commun has no effect on the direction of SK Hynix i.e., SK Hynix and Digital Power go up and down completely randomly.

Pair Corralation between SK Hynix and Digital Power

Assuming the 90 days trading horizon SK Hynix is expected to generate 1.38 times more return on investment than Digital Power. However, SK Hynix is 1.38 times more volatile than Digital Power Communications. It trades about 0.09 of its potential returns per unit of risk. Digital Power Communications is currently generating about 0.08 per unit of risk. If you would invest  15,254,700  in SK Hynix on September 14, 2024 and sell it today you would earn a total of  2,355,300  from holding SK Hynix or generate 15.44% return on investment over 90 days.

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

SK Hynix  vs.  Digital Power Communications

SK Hynix

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SK Hynix are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SK Hynix sustained solid returns over the last few months and may actually be approaching a breakup point.

Digital Power Commun

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Power Communications are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital Power may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SK Hynix and Digital Power

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

The idea behind SK Hynix and Digital Power Communications 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.