Correlation Between Ajusteel and Dong Il

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

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

Diversification Opportunities for Ajusteel and Dong Il

0.89

Correlation Coefficient

Ajusteel  Dong Il

Very poor diversification

The 3 months correlation between Ajusteel and Dong is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Ajusteel Co and Dong Il Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong Il Steel and Ajusteel 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 Ajusteel Co are associated (or correlated) with Dong Il. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong Il Steel has no effect on the direction of Ajusteel i.e., Ajusteel and Dong Il go up and down completely randomly.

Pair Corralation between Ajusteel and Dong Il

Assuming the 90 days trading horizon Ajusteel Co is expected to under-perform the Dong Il. But the stock apears to be less risky and, when comparing its historical volatility, Ajusteel Co is 1.37 times less risky than Dong Il. The stock trades about -0.2 of its potential returns per unit of risk. The Dong Il Steel is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  156,300  in Dong Il Steel on September 15, 2024 and sell it today you would lose (19,100) from holding Dong Il Steel or give up 12.22% of portfolio value over 90 days.

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

Ajusteel Co  vs.  Dong Il Steel

Ajusteel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ajusteel Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Dong Il Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dong Il Steel 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 Ajusteel and Dong Il

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

The idea behind Ajusteel Co and Dong Il Steel 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.