Correlation Between Korea Information and Dongbu Steel

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Can any of the company-specific risk be diversified away by investing in both Korea Information and Dongbu 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 Korea Information and Dongbu Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Korea Information Communications and Dongbu Steel Co, you can compare the effects of market volatilities on Korea Information and Dongbu 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 Korea Information with a short position of Dongbu Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Information and Dongbu Steel.

Diversification Opportunities for Korea Information and Dongbu Steel

-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between Korea and Dongbu is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Korea Information Communicatio and Dongbu Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbu Steel and Korea Information 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 Korea Information Communications are associated (or correlated) with Dongbu Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbu Steel has no effect on the direction of Korea Information i.e., Korea Information and Dongbu Steel go up and down completely randomly.

Pair Corralation between Korea Information and Dongbu Steel

Assuming the 90 days trading horizon Korea Information Communications is expected to generate 0.37 times more return on investment than Dongbu Steel. However, Korea Information Communications is 2.68 times less risky than Dongbu Steel. It trades about 0.02 of its potential returns per unit of risk. Dongbu Steel Co is currently generating about -0.05 per unit of risk. If you would invest  810,000  in Korea Information Communications on September 1, 2024 and sell it today you would earn a total of  2,000  from holding Korea Information Communications or generate 0.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Korea Information Communicatio  vs.  Dongbu Steel Co

 Performance 
       Timeline  
Korea Information 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Korea Information Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Korea Information is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Dongbu Steel 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Dongbu Steel Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbu Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

Korea Information and Dongbu Steel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Korea Information and Dongbu Steel

The main advantage of trading using opposite Korea Information and Dongbu Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korea Information position performs unexpectedly, Dongbu 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 Dongbu Steel will offset losses from the drop in Dongbu Steel's long position.
The idea behind Korea Information Communications and Dongbu Steel Co 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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