Correlation Between Gyeongnam Steel and Doosan Bobcat

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

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

Diversification Opportunities for Gyeongnam Steel and Doosan Bobcat

0.74

Correlation Coefficient

Gyeongnam Steel  Doosan Bobcat

Poor diversification

The 3 months correlation between Gyeongnam and Doosan is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Gyeongnam Steel Co and Doosan Bobcat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Doosan Bobcat and Gyeongnam 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 Gyeongnam Steel Co are associated (or correlated) with Doosan Bobcat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Doosan Bobcat has no effect on the direction of Gyeongnam Steel i.e., Gyeongnam Steel and Doosan Bobcat go up and down completely randomly.

Pair Corralation between Gyeongnam Steel and Doosan Bobcat

Assuming the 90 days trading horizon Gyeongnam Steel Co is expected to generate 3.15 times more return on investment than Doosan Bobcat. However, Gyeongnam Steel is 3.15 times more volatile than Doosan Bobcat. It trades about 0.31 of its potential returns per unit of risk. Doosan Bobcat is currently generating about 0.17 per unit of risk. If you would invest  273,473  in Gyeongnam Steel Co on October 1, 2024 and sell it today you would earn a total of  186,527  from holding Gyeongnam Steel Co or generate 68.21% return on investment over 90 days.

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

Gyeongnam Steel Co  vs.  Doosan Bobcat

Gyeongnam Steel

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gyeongnam Steel Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gyeongnam Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Doosan Bobcat

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Doosan Bobcat are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Doosan Bobcat sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gyeongnam Steel and Doosan Bobcat

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

The idea behind Gyeongnam Steel Co and Doosan Bobcat 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.