Correlation Between Keyang Electric and Dongsin Engineering

Can any of the company-specific risk be diversified away by investing in both Keyang Electric and Dongsin Engineering 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 Keyang Electric and Dongsin Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Keyang Electric Machinery and Dongsin Engineering Construction, you can compare the effects of market volatilities on Keyang Electric and Dongsin Engineering 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 Keyang Electric with a short position of Dongsin Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Keyang Electric and Dongsin Engineering.

Diversification Opportunities for Keyang Electric and Dongsin Engineering

0.2

Correlation Coefficient

Keyang Electric  Dongsin Engineering

Modest diversification

The 3 months correlation between Keyang and Dongsin is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Keyang Electric Machinery and Dongsin Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongsin Engineering and Keyang Electric 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 Keyang Electric Machinery are associated (or correlated) with Dongsin Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongsin Engineering has no effect on the direction of Keyang Electric i.e., Keyang Electric and Dongsin Engineering go up and down completely randomly.

Pair Corralation between Keyang Electric and Dongsin Engineering

Assuming the 90 days trading horizon Keyang Electric Machinery is expected to under-perform the Dongsin Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Keyang Electric Machinery is 3.33 times less risky than Dongsin Engineering. The stock trades about -0.09 of its potential returns per unit of risk. The Dongsin Engineering Construction is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,844,000  in Dongsin Engineering Construction on September 4, 2024 and sell it today you would earn a total of  251,000  from holding Dongsin Engineering Construction or generate 13.61% return on investment over 90 days.

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

Keyang Electric Machinery  vs.  Dongsin Engineering Constructi

Keyang Electric Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Keyang Electric Machinery 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.

Dongsin Engineering

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dongsin Engineering Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongsin Engineering sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Keyang Electric and Dongsin Engineering

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

The idea behind Keyang Electric Machinery and Dongsin Engineering Construction 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.