Correlation Between ChipsMedia and Dongwon Metal

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

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

Diversification Opportunities for ChipsMedia and Dongwon Metal

0.54

Correlation Coefficient

ChipsMedia  Dongwon Metal

Very weak diversification

The 3 months correlation between ChipsMedia and Dongwon is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding ChipsMedia and Dongwon Metal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwon Metal and ChipsMedia 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 ChipsMedia are associated (or correlated) with Dongwon Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongwon Metal has no effect on the direction of ChipsMedia i.e., ChipsMedia and Dongwon Metal go up and down completely randomly.

Pair Corralation between ChipsMedia and Dongwon Metal

Assuming the 90 days trading horizon ChipsMedia is expected to generate 26.77 times less return on investment than Dongwon Metal. But when comparing it to its historical volatility, ChipsMedia is 1.66 times less risky than Dongwon Metal. It trades about 0.01 of its potential returns per unit of risk. Dongwon Metal Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  119,000  in Dongwon Metal Co on September 13, 2024 and sell it today you would earn a total of  14,100  from holding Dongwon Metal Co or generate 11.85% return on investment over 90 days.

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

ChipsMedia  vs.  Dongwon Metal Co

ChipsMedia

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongwon Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with ChipsMedia and Dongwon Metal

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

The idea behind ChipsMedia and Dongwon Metal 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.