Correlation Between INNOX Advanced and Daewoo Engineering

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

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

Diversification Opportunities for INNOX Advanced and Daewoo Engineering

0.82

Correlation Coefficient

INNOX Advanced  Daewoo Engineering

Very poor diversification

The 3 months correlation between INNOX and Daewoo is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding INNOX Advanced Materials and Daewoo Engineering Constructio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daewoo Engineering and INNOX Advanced 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 INNOX Advanced Materials are associated (or correlated) with Daewoo Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daewoo Engineering has no effect on the direction of INNOX Advanced i.e., INNOX Advanced and Daewoo Engineering go up and down completely randomly.

Pair Corralation between INNOX Advanced and Daewoo Engineering

Assuming the 90 days trading horizon INNOX Advanced Materials is expected to under-perform the Daewoo Engineering. In addition to that, INNOX Advanced is 1.21 times more volatile than Daewoo Engineering Construction. It trades about -0.19 of its total potential returns per unit of risk. Daewoo Engineering Construction is currently generating about -0.06 per unit of volatility. If you would invest  403,000  in Daewoo Engineering Construction on August 30, 2024 and sell it today you would lose (29,000) from holding Daewoo Engineering Construction or give up 7.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.31%
Values	Daily Returns

INNOX Advanced Materials  vs.  Daewoo Engineering Constructio

INNOX Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INNOX Advanced Materials 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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Daewoo Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daewoo Engineering Construction 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 INNOX Advanced and Daewoo Engineering

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

The idea behind INNOX Advanced Materials and Daewoo 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.