Correlation Between Samsung Electronics and Dongwon Metal

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

By analyzing existing cross correlation between Samsung Electronics Co and Dongwon Metal Co, you can compare the effects of market volatilities on Samsung Electronics and Dongwon Metal 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 Samsung Electronics with a short position of Dongwon Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Samsung Electronics and Dongwon Metal.

Diversification Opportunities for Samsung Electronics and Dongwon Metal

0.8

Correlation Coefficient

Samsung Electronics  Dongwon Metal

Very poor diversification

The 3 months correlation between Samsung and Dongwon is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Samsung Electronics Co and Dongwon Metal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwon Metal and Samsung Electronics 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 Samsung Electronics Co are associated (or correlated) with Dongwon Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongwon Metal has no effect on the direction of Samsung Electronics i.e., Samsung Electronics and Dongwon Metal go up and down completely randomly.

Pair Corralation between Samsung Electronics and Dongwon Metal

Assuming the 90 days trading horizon Samsung Electronics Co is expected to under-perform the Dongwon Metal. But the stock apears to be less risky and, when comparing its historical volatility, Samsung Electronics Co is 2.11 times less risky than Dongwon Metal. The stock trades about -0.1 of its potential returns per unit of risk. The Dongwon Metal Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  142,500  in Dongwon Metal Co on September 13, 2024 and sell it today you would lose (9,400) from holding Dongwon Metal Co or give up 6.6% of portfolio value over 90 days.

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

Samsung Electronics Co  vs.  Dongwon Metal Co

Samsung Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Samsung Electronics Co 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.

Dongwon Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Samsung Electronics and Dongwon Metal

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

The idea behind Samsung Electronics Co and Dongwon Metal 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.