Correlation Between Dongbu Steel and Hanil Iron

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

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

Diversification Opportunities for Dongbu Steel and Hanil Iron

0.09

Correlation Coefficient

Dongbu Steel  Hanil Iron

Significant diversification

The 3 months correlation between Dongbu and Hanil is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Dongbu Steel Co and Hanil Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanil Iron Steel and Dongbu Steel 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 Dongbu Steel Co are associated (or correlated) with Hanil Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanil Iron Steel has no effect on the direction of Dongbu Steel i.e., Dongbu Steel and Hanil Iron go up and down completely randomly.

Pair Corralation between Dongbu Steel and Hanil Iron

Assuming the 90 days trading horizon Dongbu Steel Co is expected to generate 1.39 times more return on investment than Hanil Iron. However, Dongbu Steel is 1.39 times more volatile than Hanil Iron Steel. It trades about 0.11 of its potential returns per unit of risk. Hanil Iron Steel is currently generating about 0.04 per unit of risk. If you would invest  585,000  in Dongbu Steel Co on September 3, 2024 and sell it today you would earn a total of  77,000  from holding Dongbu Steel Co or generate 13.16% return on investment over 90 days.

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

Dongbu Steel Co  vs.  Hanil Iron Steel

Dongbu Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbu Steel Co are ranked lower than 8 (%) 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.

Hanil Iron Steel

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hanil Iron Steel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hanil Iron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dongbu Steel and Hanil Iron

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

The idea behind Dongbu Steel Co and Hanil Iron Steel 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.