Correlation Between Korea Gas and Dongbu Steel

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

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

Diversification Opportunities for Korea Gas and Dongbu Steel

-0.05

Correlation Coefficient

Korea Gas  Dongbu Steel

Good diversification

The 3 months correlation between Korea and Dongbu is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Korea Gas and Dongbu Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbu Steel and Korea Gas 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 Korea Gas are associated (or correlated) with Dongbu Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbu Steel has no effect on the direction of Korea Gas i.e., Korea Gas and Dongbu Steel go up and down completely randomly.

Pair Corralation between Korea Gas and Dongbu Steel

Assuming the 90 days trading horizon Korea Gas is expected to under-perform the Dongbu Steel. In addition to that, Korea Gas is 1.72 times more volatile than Dongbu Steel Co. It trades about -0.1 of its total potential returns per unit of risk. Dongbu Steel Co is currently generating about -0.02 per unit of volatility. If you would invest  624,000  in Dongbu Steel Co on September 12, 2024 and sell it today you would lose (32,000) from holding Dongbu Steel Co or give up 5.13% of portfolio value over 90 days.

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

Korea Gas  vs.  Dongbu Steel Co

Korea Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Gas 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.

Dongbu Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongbu Steel Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dongbu 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 Korea Gas and Dongbu Steel

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

The idea behind Korea Gas and Dongbu Steel 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.

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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.