Correlation Between Ecocab and Daedong Gear

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

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

Diversification Opportunities for Ecocab and Daedong Gear

0.6

Correlation Coefficient

Ecocab  Daedong Gear

Poor diversification

The 3 months correlation between Ecocab and Daedong is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ecocab Co and Daedong Gear Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daedong Gear and Ecocab 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 Ecocab Co are associated (or correlated) with Daedong Gear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daedong Gear has no effect on the direction of Ecocab i.e., Ecocab and Daedong Gear go up and down completely randomly.

Pair Corralation between Ecocab and Daedong Gear

Assuming the 90 days trading horizon Ecocab is expected to generate 2.19 times less return on investment than Daedong Gear. In addition to that, Ecocab is 1.43 times more volatile than Daedong Gear Co. It trades about 0.05 of its total potential returns per unit of risk. Daedong Gear Co is currently generating about 0.15 per unit of volatility. If you would invest  770,000  in Daedong Gear Co on September 1, 2024 and sell it today you would earn a total of  351,000  from holding Daedong Gear Co or generate 45.58% return on investment over 90 days.

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

Ecocab Co  vs.  Daedong Gear Co

Ecocab

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ecocab Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ecocab sustained solid returns over the last few months and may actually be approaching a breakup point.

Daedong Gear

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daedong Gear Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daedong Gear sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecocab and Daedong Gear

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

The idea behind Ecocab Co and Daedong Gear 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 Global Correlations module to find global opportunities by holding instruments from different markets.