Correlation Between Hanwha Solutions and Dongbu Steel

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

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

Diversification Opportunities for Hanwha Solutions and Dongbu Steel

-0.24

Correlation Coefficient

Hanwha Solutions  Dongbu Steel

Very good diversification

The 3 months correlation between Hanwha and Dongbu is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Hanwha Solutions and Dongbu Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbu Steel and Hanwha Solutions 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 Hanwha Solutions are associated (or correlated) with Dongbu Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbu Steel has no effect on the direction of Hanwha Solutions i.e., Hanwha Solutions and Dongbu Steel go up and down completely randomly.

Pair Corralation between Hanwha Solutions and Dongbu Steel

Assuming the 90 days trading horizon Hanwha Solutions is expected to under-perform the Dongbu Steel. In addition to that, Hanwha Solutions is 1.56 times more volatile than Dongbu Steel Co. It trades about -0.17 of its total potential returns per unit of risk. Dongbu Steel Co is currently generating about 0.14 per unit of volatility. If you would invest  558,000  in Dongbu Steel Co on September 4, 2024 and sell it today you would earn a total of  99,000  from holding Dongbu Steel Co or generate 17.74% return on investment over 90 days.

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

Hanwha Solutions  vs.  Dongbu Steel Co

Hanwha Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hanwha Solutions 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.

Dongbu Steel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbu Steel Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbu Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hanwha Solutions and Dongbu Steel

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

The idea behind Hanwha Solutions and Dongbu 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.