Correlation Between Nam Hwa and Daekyung Machinery

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

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

Diversification Opportunities for Nam Hwa and Daekyung Machinery

0.37

Correlation Coefficient

Nam Hwa  Daekyung Machinery

Weak diversification

The 3 months correlation between Nam and Daekyung is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Nam Hwa Construction and Daekyung Machinery Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daekyung Machinery and Nam Hwa 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 Nam Hwa Construction are associated (or correlated) with Daekyung Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daekyung Machinery has no effect on the direction of Nam Hwa i.e., Nam Hwa and Daekyung Machinery go up and down completely randomly.

Pair Corralation between Nam Hwa and Daekyung Machinery

Assuming the 90 days trading horizon Nam Hwa is expected to generate 9.18 times less return on investment than Daekyung Machinery. In addition to that, Nam Hwa is 1.22 times more volatile than Daekyung Machinery Engineering. It trades about 0.03 of its total potential returns per unit of risk. Daekyung Machinery Engineering is currently generating about 0.37 per unit of volatility. If you would invest  39,900  in Daekyung Machinery Engineering on September 4, 2024 and sell it today you would earn a total of  11,600  from holding Daekyung Machinery Engineering or generate 29.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.82%
Values	Daily Returns

Nam Hwa Construction  vs.  Daekyung Machinery Engineering

Nam Hwa Construction

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nam Hwa Construction are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nam Hwa is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Daekyung Machinery

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daekyung Machinery Engineering are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daekyung Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nam Hwa and Daekyung Machinery

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

The idea behind Nam Hwa Construction and Daekyung Machinery 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.