Correlation Between Busan Ind and Dongbang Ship

Can any of the company-specific risk be diversified away by investing in both Busan Ind and Dongbang Ship 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 Busan Ind and Dongbang Ship into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Busan Ind and Dongbang Ship Machinery, you can compare the effects of market volatilities on Busan Ind and Dongbang Ship 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 Busan Ind with a short position of Dongbang Ship. Check out your portfolio center. Please also check ongoing floating volatility patterns of Busan Ind and Dongbang Ship.

Diversification Opportunities for Busan Ind and Dongbang Ship

0.35

Correlation Coefficient

Busan Ind  Dongbang Ship

Weak diversification

The 3 months correlation between Busan and Dongbang is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Busan Ind and Dongbang Ship Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbang Ship Machinery and Busan Ind 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 Busan Ind are associated (or correlated) with Dongbang Ship. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbang Ship Machinery has no effect on the direction of Busan Ind i.e., Busan Ind and Dongbang Ship go up and down completely randomly.

Pair Corralation between Busan Ind and Dongbang Ship

Assuming the 90 days trading horizon Busan Ind is expected to generate 2.21 times more return on investment than Dongbang Ship. However, Busan Ind is 2.21 times more volatile than Dongbang Ship Machinery. It trades about 0.13 of its potential returns per unit of risk. Dongbang Ship Machinery is currently generating about 0.07 per unit of risk. If you would invest  5,100,000  in Busan Ind on September 12, 2024 and sell it today you would earn a total of  2,120,000  from holding Busan Ind or generate 41.57% return on investment over 90 days.

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

Busan Ind  vs.  Dongbang Ship Machinery

Busan Ind

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Busan Ind are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Busan Ind sustained solid returns over the last few months and may actually be approaching a breakup point.

Dongbang Ship Machinery

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbang Ship Machinery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbang Ship may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Busan Ind and Dongbang Ship

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

The idea behind Busan Ind and Dongbang Ship Machinery 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.