Correlation Between Sungwoo Electronics and Dongbu Steel

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

By analyzing existing cross correlation between Sungwoo Electronics Co and Dongbu Steel Co, you can compare the effects of market volatilities on Sungwoo Electronics and Dongbu 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 Sungwoo Electronics with a short position of Dongbu Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sungwoo Electronics and Dongbu Steel.

Diversification Opportunities for Sungwoo Electronics and Dongbu Steel

0.67

Correlation Coefficient

Sungwoo Electronics  Dongbu Steel

Poor diversification

The 3 months correlation between Sungwoo and Dongbu is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sungwoo Electronics Co and Dongbu Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbu Steel and Sungwoo Electronics 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 Sungwoo Electronics Co are associated (or correlated) with Dongbu Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbu Steel has no effect on the direction of Sungwoo Electronics i.e., Sungwoo Electronics and Dongbu Steel go up and down completely randomly.

Pair Corralation between Sungwoo Electronics and Dongbu Steel

Assuming the 90 days trading horizon Sungwoo Electronics is expected to generate 8.88 times less return on investment than Dongbu Steel. In addition to that, Sungwoo Electronics is 1.39 times more volatile than Dongbu Steel Co. It trades about 0.01 of its total potential returns per unit of risk. Dongbu Steel Co is currently generating about 0.14 per unit of volatility. If you would invest  558,000  in Dongbu Steel Co on September 4, 2024 and sell it today you would earn a total of  99,000  from holding Dongbu Steel Co or generate 17.74% return on investment over 90 days.

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

Sungwoo Electronics Co  vs.  Dongbu Steel Co

Sungwoo Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongbu Steel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbu Steel Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbu Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sungwoo Electronics and Dongbu Steel

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

The idea behind Sungwoo Electronics Co and Dongbu Steel Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.