Correlation Between Daewoo Engineering and Dragonfly

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

By analyzing existing cross correlation between Daewoo Engineering Construction and Dragonfly GF Co, you can compare the effects of market volatilities on Daewoo Engineering and Dragonfly 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 Daewoo Engineering with a short position of Dragonfly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daewoo Engineering and Dragonfly.

Diversification Opportunities for Daewoo Engineering and Dragonfly

0.69

Correlation Coefficient

Daewoo Engineering  Dragonfly

Poor diversification

The 3 months correlation between Daewoo and Dragonfly is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Daewoo Engineering Constructio and Dragonfly GF Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dragonfly GF and Daewoo Engineering 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 Daewoo Engineering Construction are associated (or correlated) with Dragonfly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dragonfly GF has no effect on the direction of Daewoo Engineering i.e., Daewoo Engineering and Dragonfly go up and down completely randomly.

Pair Corralation between Daewoo Engineering and Dragonfly

Assuming the 90 days trading horizon Daewoo Engineering Construction is expected to generate 0.37 times more return on investment than Dragonfly. However, Daewoo Engineering Construction is 2.74 times less risky than Dragonfly. It trades about -0.07 of its potential returns per unit of risk. Dragonfly GF Co is currently generating about -0.27 per unit of risk. If you would invest  400,000  in Daewoo Engineering Construction on September 3, 2024 and sell it today you would lose (31,000) from holding Daewoo Engineering Construction or give up 7.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	74.58%
Values	Daily Returns

Daewoo Engineering Constructio  vs.  Dragonfly GF Co

Daewoo Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daewoo Engineering Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Dragonfly GF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dragonfly GF 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.

Pair Trading with Daewoo Engineering and Dragonfly

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

The idea behind Daewoo Engineering Construction and Dragonfly GF 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.