Correlation Between POSCO Holdings and Dongkuk Steel

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

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

Diversification Opportunities for POSCO Holdings and Dongkuk Steel

0.87

Correlation Coefficient

POSCO Holdings  Dongkuk Steel

Very poor diversification

The 3 months correlation between POSCO and Dongkuk is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and Dongkuk Steel Mill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongkuk Steel Mill and POSCO Holdings 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 POSCO Holdings are associated (or correlated) with Dongkuk Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongkuk Steel Mill has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and Dongkuk Steel go up and down completely randomly.

Pair Corralation between POSCO Holdings and Dongkuk Steel

Assuming the 90 days trading horizon POSCO Holdings is expected to under-perform the Dongkuk Steel. In addition to that, POSCO Holdings is 2.78 times more volatile than Dongkuk Steel Mill. It trades about -0.13 of its total potential returns per unit of risk. Dongkuk Steel Mill is currently generating about -0.14 per unit of volatility. If you would invest  806,000  in Dongkuk Steel Mill on September 3, 2024 and sell it today you would lose (66,000) from holding Dongkuk Steel Mill or give up 8.19% of portfolio value over 90 days.

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

POSCO Holdings  vs.  Dongkuk Steel Mill

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings 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.

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with POSCO Holdings and Dongkuk Steel

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

The idea behind POSCO Holdings and Dongkuk Steel Mill 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.