Correlation Between Microfriend and Daekyung Machinery

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

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

Diversification Opportunities for Microfriend and Daekyung Machinery

-0.71

Correlation Coefficient

Microfriend  Daekyung Machinery

Pay attention - limited upside

The 3 months correlation between Microfriend and Daekyung is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend and Daekyung Machinery Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daekyung Machinery and Microfriend 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 Microfriend are associated (or correlated) with Daekyung Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daekyung Machinery has no effect on the direction of Microfriend i.e., Microfriend and Daekyung Machinery go up and down completely randomly.

Pair Corralation between Microfriend and Daekyung Machinery

Assuming the 90 days trading horizon Microfriend is expected to under-perform the Daekyung Machinery. In addition to that, Microfriend is 2.13 times more volatile than Daekyung Machinery Engineering. It trades about -0.02 of its total potential returns per unit of risk. Daekyung Machinery Engineering is currently generating about 0.16 per unit of volatility. If you would invest  41,300  in Daekyung Machinery Engineering on September 12, 2024 and sell it today you would earn a total of  10,200  from holding Daekyung Machinery Engineering or generate 24.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	84.48%
Values	Daily Returns

Microfriend  vs.  Daekyung Machinery Engineering

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microfriend 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.

Daekyung Machinery

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Daekyung Machinery Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Daekyung Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microfriend and Daekyung Machinery

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

The idea behind Microfriend and Daekyung Machinery Engineering 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.