Correlation Between Dong A and Jeju Bank

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

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

Diversification Opportunities for Dong A and Jeju Bank

-0.45

Correlation Coefficient

Dong A  Jeju Bank

Very good diversification

The 3 months correlation between Dong and Jeju is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Steel Technology and Jeju Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jeju Bank and Dong A 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 Dong A Steel Technology are associated (or correlated) with Jeju Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jeju Bank has no effect on the direction of Dong A i.e., Dong A and Jeju Bank go up and down completely randomly.

Pair Corralation between Dong A and Jeju Bank

Assuming the 90 days trading horizon Dong A Steel Technology is expected to generate 2.17 times more return on investment than Jeju Bank. However, Dong A is 2.17 times more volatile than Jeju Bank. It trades about 0.01 of its potential returns per unit of risk. Jeju Bank is currently generating about -0.09 per unit of risk. If you would invest  317,000  in Dong A Steel Technology on September 5, 2024 and sell it today you would lose (6,000) from holding Dong A Steel Technology or give up 1.89% of portfolio value over 90 days.

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

Dong A Steel Technology  vs.  Jeju Bank

Dong A Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dong A Steel Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dong A is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jeju Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jeju Bank 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.

Pair Trading with Dong A and Jeju Bank

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

The idea behind Dong A Steel Technology and Jeju Bank 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.