Correlation Between Formetal and Dongil Metal

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

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

Diversification Opportunities for Formetal and Dongil Metal

-0.12

Correlation Coefficient

Formetal  Dongil Metal

Good diversification

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

Pair Corralation between Formetal and Dongil Metal

Assuming the 90 days trading horizon Formetal Co is expected to generate 2.73 times more return on investment than Dongil Metal. However, Formetal is 2.73 times more volatile than Dongil Metal Co. It trades about 0.0 of its potential returns per unit of risk. Dongil Metal Co is currently generating about -0.08 per unit of risk. If you would invest  352,500  in Formetal Co on September 13, 2024 and sell it today you would lose (14,000) from holding Formetal Co or give up 3.97% of portfolio value over 90 days.

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

Formetal Co  vs.  Dongil Metal Co

Formetal

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Formetal Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Formetal sustained solid returns over the last few months and may actually be approaching a breakup point.

Dongil Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongil Metal Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Formetal and Dongil Metal

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

The idea behind Formetal Co and Dongil 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.