Correlation Between Dongkuk Steel and WONIK Materials

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

By analyzing existing cross correlation between Dongkuk Steel Mill and WONIK Materials CoLtd, you can compare the effects of market volatilities on Dongkuk Steel and WONIK Materials 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 Dongkuk Steel with a short position of WONIK Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongkuk Steel and WONIK Materials.

Diversification Opportunities for Dongkuk Steel and WONIK Materials

0.81

Correlation Coefficient

Dongkuk Steel  WONIK Materials

Very poor diversification

The 3 months correlation between Dongkuk and WONIK is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Dongkuk Steel Mill and WONIK Materials CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WONIK Materials CoLtd and Dongkuk Steel 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 Dongkuk Steel Mill are associated (or correlated) with WONIK Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WONIK Materials CoLtd has no effect on the direction of Dongkuk Steel i.e., Dongkuk Steel and WONIK Materials go up and down completely randomly.

Pair Corralation between Dongkuk Steel and WONIK Materials

Assuming the 90 days trading horizon Dongkuk Steel Mill is expected to generate 14.87 times more return on investment than WONIK Materials. However, Dongkuk Steel is 14.87 times more volatile than WONIK Materials CoLtd. It trades about 0.04 of its potential returns per unit of risk. WONIK Materials CoLtd is currently generating about -0.03 per unit of risk. If you would invest  922,034  in Dongkuk Steel Mill on September 14, 2024 and sell it today you would lose (174,034) from holding Dongkuk Steel Mill or give up 18.88% of portfolio value over 90 days.

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

Dongkuk Steel Mill  vs.  WONIK Materials CoLtd

Dongkuk Steel Mill

Risk-Adjusted Performance

0 of 100

Very Weak

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

WONIK Materials CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WONIK Materials CoLtd 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dongkuk Steel and WONIK Materials

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

The idea behind Dongkuk Steel Mill and WONIK Materials CoLtd 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.