Correlation Between Korean Drug and Dongkuk Steel
Can any of the company-specific risk be diversified away by investing in both Korean Drug and Dongkuk Steel 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 Korean Drug and Dongkuk Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Korean Drug Co and Dongkuk Steel Mill, you can compare the effects of market volatilities on Korean Drug and Dongkuk Steel 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 Korean Drug with a short position of Dongkuk Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korean Drug and Dongkuk Steel.
Diversification Opportunities for Korean Drug and Dongkuk Steel
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Korean and Dongkuk is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Korean Drug Co and Dongkuk Steel Mill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongkuk Steel Mill and Korean Drug 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 Korean Drug Co are associated (or correlated) with Dongkuk Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongkuk Steel Mill has no effect on the direction of Korean Drug i.e., Korean Drug and Dongkuk Steel go up and down completely randomly.
Pair Corralation between Korean Drug and Dongkuk Steel
Assuming the 90 days trading horizon Korean Drug Co is expected to under-perform the Dongkuk Steel. In addition to that, Korean Drug is 1.22 times more volatile than Dongkuk Steel Mill. It trades about -0.27 of its total potential returns per unit of risk. Dongkuk Steel Mill is currently generating about -0.28 per unit of volatility. If you would invest 791,000 in Dongkuk Steel Mill on August 31, 2024 and sell it today you would lose (51,000) from holding Dongkuk Steel Mill or give up 6.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Korean Drug Co vs. Dongkuk Steel Mill
Performance |
| Timeline |
| Korean Drug |
| Dongkuk Steel Mill |
Korean Drug and Dongkuk Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Korean Drug and Dongkuk Steel
The main advantage of trading using opposite Korean Drug and Dongkuk Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korean Drug position performs unexpectedly, Dongkuk Steel 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 Dongkuk Steel will offset losses from the drop in Dongkuk Steel's long position.| Korean Drug vs. SM Entertainment Co | Korean Drug vs. Korea Computer | Korean Drug vs. T3 Entertainment Co | Korean Drug vs. Alton Sports CoLtd |
| Dongkuk Steel vs. LG Chemicals | Dongkuk Steel vs. POSCO Holdings | Dongkuk Steel vs. Hanwha Solutions | Dongkuk Steel vs. Lotte Chemical Corp |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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