Correlation Between Daedong Steel and KakaoBank Corp

Can any of the company-specific risk be diversified away by investing in both Daedong Steel and KakaoBank Corp 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 KakaoBank Corp 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 KakaoBank Corp, you can compare the effects of market volatilities on Daedong Steel and KakaoBank Corp 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 KakaoBank Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daedong Steel and KakaoBank Corp.

Diversification Opportunities for Daedong Steel and KakaoBank Corp

-0.14

Correlation Coefficient

Daedong Steel  KakaoBank Corp

Good diversification

The 3 months correlation between Daedong and KakaoBank is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Daedong Steel Co and KakaoBank Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KakaoBank Corp 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 KakaoBank Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KakaoBank Corp has no effect on the direction of Daedong Steel i.e., Daedong Steel and KakaoBank Corp go up and down completely randomly.

Pair Corralation between Daedong Steel and KakaoBank Corp

Assuming the 90 days trading horizon Daedong Steel Co is expected to under-perform the KakaoBank Corp. In addition to that, Daedong Steel is 1.18 times more volatile than KakaoBank Corp. It trades about -0.05 of its total potential returns per unit of risk. KakaoBank Corp is currently generating about 0.1 per unit of volatility. If you would invest  2,140,000  in KakaoBank Corp on September 13, 2024 and sell it today you would earn a total of  275,000  from holding KakaoBank Corp or generate 12.85% return on investment over 90 days.

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

Daedong Steel Co  vs.  KakaoBank Corp

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 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.

KakaoBank Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KakaoBank Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KakaoBank Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daedong Steel and KakaoBank Corp

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

The idea behind Daedong Steel Co and KakaoBank Corp 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.