Correlation Between Dreamus and Korea Information

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

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

Diversification Opportunities for Dreamus and Korea Information

0.66

Correlation Coefficient

Dreamus  Korea Information

Poor diversification

The 3 months correlation between Dreamus and Korea is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dreamus Company and Korea Information Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Information and Dreamus 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 Dreamus Company are associated (or correlated) with Korea Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Information has no effect on the direction of Dreamus i.e., Dreamus and Korea Information go up and down completely randomly.

Pair Corralation between Dreamus and Korea Information

Assuming the 90 days trading horizon Dreamus Company is expected to under-perform the Korea Information. In addition to that, Dreamus is 1.3 times more volatile than Korea Information Engineering. It trades about -0.06 of its total potential returns per unit of risk. Korea Information Engineering is currently generating about -0.01 per unit of volatility. If you would invest  336,000  in Korea Information Engineering on September 12, 2024 and sell it today you would lose (69,000) from holding Korea Information Engineering or give up 20.54% of portfolio value over 90 days.

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

Dreamus Company  vs.  Korea Information Engineering

Dreamus Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dreamus Company 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.

Korea Information

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Information Engineering are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Information may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dreamus and Korea Information

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

The idea behind Dreamus Company and Korea Information 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.