Correlation Between Dongbang Ship and Dongsin Engineering

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

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

Diversification Opportunities for Dongbang Ship and Dongsin Engineering

0.12

Correlation Coefficient

Dongbang Ship  Dongsin Engineering

Average diversification

The 3 months correlation between Dongbang and Dongsin is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Dongbang Ship Machinery and Dongsin Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongsin Engineering and Dongbang Ship 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 Dongbang Ship Machinery are associated (or correlated) with Dongsin Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongsin Engineering has no effect on the direction of Dongbang Ship i.e., Dongbang Ship and Dongsin Engineering go up and down completely randomly.

Pair Corralation between Dongbang Ship and Dongsin Engineering

Assuming the 90 days trading horizon Dongbang Ship is expected to generate 2.55 times less return on investment than Dongsin Engineering. But when comparing it to its historical volatility, Dongbang Ship Machinery is 2.38 times less risky than Dongsin Engineering. It trades about 0.06 of its potential returns per unit of risk. Dongsin Engineering Construction is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,844,000  in Dongsin Engineering Construction on September 4, 2024 and sell it today you would earn a total of  251,000  from holding Dongsin Engineering Construction or generate 13.61% return on investment over 90 days.

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

Dongbang Ship Machinery  vs.  Dongsin Engineering Constructi

Dongbang Ship Machinery

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbang Ship Machinery are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbang Ship may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dongsin Engineering

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dongsin Engineering Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongsin Engineering sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongbang Ship and Dongsin Engineering

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

The idea behind Dongbang Ship Machinery and Dongsin 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.