Correlation Between KEPCO Engineering and Daekyung Machinery

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

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

Diversification Opportunities for KEPCO Engineering and Daekyung Machinery

0.01

Correlation Coefficient

KEPCO Engineering  Daekyung Machinery

Significant diversification

The 3 months correlation between KEPCO and Daekyung is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding KEPCO Engineering Construction and Daekyung Machinery Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daekyung Machinery and KEPCO 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 KEPCO Engineering Construction are associated (or correlated) with Daekyung Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daekyung Machinery has no effect on the direction of KEPCO Engineering i.e., KEPCO Engineering and Daekyung Machinery go up and down completely randomly.

Pair Corralation between KEPCO Engineering and Daekyung Machinery

Assuming the 90 days trading horizon KEPCO Engineering Construction is expected to generate 0.51 times more return on investment than Daekyung Machinery. However, KEPCO Engineering Construction is 1.97 times less risky than Daekyung Machinery. It trades about 0.03 of its potential returns per unit of risk. Daekyung Machinery Engineering is currently generating about -0.01 per unit of risk. If you would invest  6,306,914  in KEPCO Engineering Construction on September 4, 2024 and sell it today you would earn a total of  543,086  from holding KEPCO Engineering Construction or generate 8.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

KEPCO Engineering Construction  vs.  Daekyung Machinery Engineering

KEPCO Engineering

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KEPCO Engineering Construction are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KEPCO Engineering is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Daekyung Machinery

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with KEPCO Engineering and Daekyung Machinery

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

The idea behind KEPCO Engineering Construction and Daekyung Machinery Engineering 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.