Correlation Between Dong-A Steel and Samwon Steel

Can any of the company-specific risk be diversified away by investing in both Dong-A Steel and Samwon Steel 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 Steel and Samwon Steel 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 Samwon Steel, you can compare the effects of market volatilities on Dong-A Steel and Samwon Steel 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 Steel with a short position of Samwon Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dong-A Steel and Samwon Steel.

Diversification Opportunities for Dong-A Steel and Samwon Steel

0.55

Correlation Coefficient

Dong-A Steel  Samwon Steel

Very weak diversification

The 3 months correlation between Dong-A and Samwon is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Steel Technology and Samwon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Samwon Steel and Dong-A 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 Dong A Steel Technology are associated (or correlated) with Samwon Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Samwon Steel has no effect on the direction of Dong-A Steel i.e., Dong-A Steel and Samwon Steel go up and down completely randomly.

Pair Corralation between Dong-A Steel and Samwon Steel

Assuming the 90 days trading horizon Dong A Steel Technology is expected to generate 2.85 times more return on investment than Samwon Steel. However, Dong-A Steel is 2.85 times more volatile than Samwon Steel. It trades about 0.01 of its potential returns per unit of risk. Samwon Steel is currently generating about -0.08 per unit of risk. If you would invest  310,000  in Dong A Steel Technology on September 16, 2024 and sell it today you would lose (6,500) from holding Dong A Steel Technology or give up 2.1% of portfolio value over 90 days.

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

Dong A Steel Technology  vs.  Samwon Steel

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 Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Samwon Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dong-A Steel and Samwon Steel

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

The idea behind Dong A Steel Technology and Samwon Steel 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.

Check out your portfolio center.

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.