Correlation Between Daedong Steel and Tplex

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

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

Diversification Opportunities for Daedong Steel and Tplex

0.03

Correlation Coefficient

Daedong Steel  Tplex

Significant diversification

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

Pair Corralation between Daedong Steel and Tplex

Assuming the 90 days trading horizon Daedong Steel Co is expected to under-perform the Tplex. But the stock apears to be less risky and, when comparing its historical volatility, Daedong Steel Co is 1.86 times less risky than Tplex. The stock trades about -0.11 of its potential returns per unit of risk. The Tplex Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  281,500  in Tplex Co on September 2, 2024 and sell it today you would earn a total of  17,500  from holding Tplex Co or generate 6.22% return on investment over 90 days.

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

Daedong Steel Co  vs.  Tplex Co

Daedong Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daedong Steel 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.

Tplex

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tplex Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tplex may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Daedong Steel and Tplex

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

The idea behind Daedong Steel Co and Tplex 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.