Correlation Between Dongwoo Farm and Sungdo Engineering

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

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

Diversification Opportunities for Dongwoo Farm and Sungdo Engineering

0.76

Correlation Coefficient

Dongwoo Farm  Sungdo Engineering

Poor diversification

The 3 months correlation between Dongwoo and Sungdo is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dongwoo Farm To and Sungdo Engineering Constructio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sungdo Engineering and Dongwoo Farm 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 Dongwoo Farm To are associated (or correlated) with Sungdo Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sungdo Engineering has no effect on the direction of Dongwoo Farm i.e., Dongwoo Farm and Sungdo Engineering go up and down completely randomly.

Pair Corralation between Dongwoo Farm and Sungdo Engineering

Assuming the 90 days trading horizon Dongwoo Farm To is expected to generate 0.5 times more return on investment than Sungdo Engineering. However, Dongwoo Farm To is 2.01 times less risky than Sungdo Engineering. It trades about -0.03 of its potential returns per unit of risk. Sungdo Engineering Construction is currently generating about -0.03 per unit of risk. If you would invest  197,889  in Dongwoo Farm To on October 1, 2024 and sell it today you would lose (4,889) from holding Dongwoo Farm To or give up 2.47% of portfolio value over 90 days.

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

Dongwoo Farm To  vs.  Sungdo Engineering Constructio

Dongwoo Farm To

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sungdo Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dongwoo Farm and Sungdo Engineering

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

The idea behind Dongwoo Farm To and Sungdo Engineering Construction 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.