Correlation Between Kukdong Oil and Dongwon Metal

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

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

Diversification Opportunities for Kukdong Oil and Dongwon Metal

0.57

Correlation Coefficient

Kukdong Oil  Dongwon Metal

Very weak diversification

The 3 months correlation between Kukdong and Dongwon is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Kukdong Oil Chemicals and Dongwon Metal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwon Metal and Kukdong Oil 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 Kukdong Oil Chemicals 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 Kukdong Oil i.e., Kukdong Oil and Dongwon Metal go up and down completely randomly.

Pair Corralation between Kukdong Oil and Dongwon Metal

Assuming the 90 days trading horizon Kukdong Oil Chemicals is expected to under-perform the Dongwon Metal. But the stock apears to be less risky and, when comparing its historical volatility, Kukdong Oil Chemicals is 3.81 times less risky than Dongwon Metal. The stock trades about -0.05 of its potential returns per unit of risk. The Dongwon Metal Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  142,500  in Dongwon Metal Co on September 14, 2024 and sell it today you would earn a total of  30,500  from holding Dongwon Metal Co or generate 21.4% return on investment over 90 days.

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

Kukdong Oil Chemicals  vs.  Dongwon Metal Co

Kukdong Oil Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongwon Metal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dongwon Metal Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongwon Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kukdong Oil and Dongwon Metal

The main advantage of trading using opposite Kukdong Oil and Dongwon Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kukdong Oil 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 Kukdong Oil Chemicals 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.