Correlation Between Nam Hwa and Sungdo Engineering

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

Diversification Opportunities for Nam Hwa and Sungdo Engineering

0.22

Correlation Coefficient

Nam Hwa  Sungdo Engineering

Modest diversification

The 3 months correlation between Nam and Sungdo is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Nam Hwa Construction and Sungdo Engineering Constructio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sungdo Engineering 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 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 Nam Hwa i.e., Nam Hwa and Sungdo Engineering go up and down completely randomly.

Pair Corralation between Nam Hwa and Sungdo Engineering

Assuming the 90 days trading horizon Nam Hwa Construction is expected to generate 1.27 times more return on investment than Sungdo Engineering. However, Nam Hwa is 1.27 times more volatile than Sungdo Engineering Construction. It trades about 0.01 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  412,470  in Nam Hwa Construction on October 1, 2024 and sell it today you would lose (3,470) from holding Nam Hwa Construction or give up 0.84% of portfolio value over 90 days.

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

Nam Hwa Construction  vs.  Sungdo Engineering Constructio

Nam Hwa Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nam Hwa Construction has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

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 Nam Hwa and Sungdo Engineering

The main advantage of trading using opposite Nam Hwa and Sungdo Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nam Hwa 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 Nam Hwa Construction 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.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..