Correlation Between Damsan JSC and RangDong Plastic

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

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

Diversification Opportunities for Damsan JSC and RangDong Plastic

0.78

Correlation Coefficient

Damsan JSC  RangDong Plastic

Poor diversification

The 3 months correlation between Damsan and RangDong is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Damsan JSC and RangDong Plastic JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RangDong Plastic JSC and Damsan JSC 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 Damsan JSC are associated (or correlated) with RangDong Plastic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RangDong Plastic JSC has no effect on the direction of Damsan JSC i.e., Damsan JSC and RangDong Plastic go up and down completely randomly.

Pair Corralation between Damsan JSC and RangDong Plastic

Assuming the 90 days trading horizon Damsan JSC is expected to generate 0.54 times more return on investment than RangDong Plastic. However, Damsan JSC is 1.85 times less risky than RangDong Plastic. It trades about -0.07 of its potential returns per unit of risk. RangDong Plastic JSC is currently generating about -0.4 per unit of risk. If you would invest  988,000  in Damsan JSC on September 14, 2024 and sell it today you would lose (75,000) from holding Damsan JSC or give up 7.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	84.38%
Values	Daily Returns

Damsan JSC  vs.  RangDong Plastic JSC

Damsan JSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Damsan JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

RangDong Plastic JSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RangDong Plastic JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Damsan JSC and RangDong Plastic

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

The idea behind Damsan JSC and RangDong Plastic JSC 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.