Correlation Between Iljin Materials and Dong-A Steel

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

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

Diversification Opportunities for Iljin Materials and Dong-A Steel

-0.03

Correlation Coefficient

Iljin Materials  Dong-A Steel

Good diversification

The 3 months correlation between Iljin and Dong-A is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Iljin Materials Co and Dong A Steel Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong A Steel and Iljin Materials 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 Iljin Materials Co are associated (or correlated) with Dong-A Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong A Steel has no effect on the direction of Iljin Materials i.e., Iljin Materials and Dong-A Steel go up and down completely randomly.

Pair Corralation between Iljin Materials and Dong-A Steel

Assuming the 90 days trading horizon Iljin Materials Co is expected to under-perform the Dong-A Steel. But the stock apears to be less risky and, when comparing its historical volatility, Iljin Materials Co is 1.14 times less risky than Dong-A Steel. The stock trades about -0.23 of its potential returns per unit of risk. The Dong A Steel Technology is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  310,000  in Dong A Steel Technology on September 16, 2024 and sell it today you would lose (6,500) from holding Dong A Steel Technology or give up 2.1% of portfolio value over 90 days.

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

Iljin Materials Co  vs.  Dong A Steel Technology

Iljin Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iljin Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Dong A Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Iljin Materials and Dong-A Steel

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

The idea behind Iljin Materials Co and Dong A Steel Technology 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 Transaction History module to view history of all your transactions and understand their impact on performance.