Correlation Between Dongwon System and Korea Information

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

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

Diversification Opportunities for Dongwon System and Korea Information

0.47

Correlation Coefficient

Dongwon System  Korea Information

Very weak diversification

The 3 months correlation between Dongwon and Korea is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Dongwon System and Korea Information Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Information and Dongwon System 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 Dongwon System are associated (or correlated) with Korea Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Information has no effect on the direction of Dongwon System i.e., Dongwon System and Korea Information go up and down completely randomly.

Pair Corralation between Dongwon System and Korea Information

Assuming the 90 days trading horizon Dongwon System is expected to generate 1.37 times less return on investment than Korea Information. In addition to that, Dongwon System is 1.54 times more volatile than Korea Information Engineering. It trades about 0.04 of its total potential returns per unit of risk. Korea Information Engineering is currently generating about 0.08 per unit of volatility. If you would invest  248,500  in Korea Information Engineering on September 13, 2024 and sell it today you would earn a total of  22,500  from holding Korea Information Engineering or generate 9.05% return on investment over 90 days.

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

Dongwon System  vs.  Korea Information Engineering

Dongwon System

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dongwon System are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongwon System may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Korea Information

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Information Engineering are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Information may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dongwon System and Korea Information

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

The idea behind Dongwon System and Korea Information Engineering 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.