Correlation Between Maeil Dairies and Fine Besteel
Can any of the company-specific risk be diversified away by investing in both Maeil Dairies and Fine Besteel 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 Maeil Dairies and Fine Besteel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Maeil Dairies Co and Fine Besteel Co, you can compare the effects of market volatilities on Maeil Dairies and Fine Besteel 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 Maeil Dairies with a short position of Fine Besteel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maeil Dairies and Fine Besteel.
Diversification Opportunities for Maeil Dairies and Fine Besteel
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between Maeil and Fine is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Maeil Dairies Co and Fine Besteel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fine Besteel and Maeil Dairies 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 Maeil Dairies Co are associated (or correlated) with Fine Besteel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fine Besteel has no effect on the direction of Maeil Dairies i.e., Maeil Dairies and Fine Besteel go up and down completely randomly.
Pair Corralation between Maeil Dairies and Fine Besteel
Assuming the 90 days trading horizon Maeil Dairies is expected to generate 2.08 times less return on investment than Fine Besteel. But when comparing it to its historical volatility, Maeil Dairies Co is 2.16 times less risky than Fine Besteel. It trades about 0.17 of its potential returns per unit of risk. Fine Besteel Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 106,500 in Fine Besteel Co on November 27, 2024 and sell it today you would earn a total of 8,100 from holding Fine Besteel Co or generate 7.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Maeil Dairies Co vs. Fine Besteel Co
Performance |
| Timeline |
| Maeil Dairies |
| Fine Besteel |
Maeil Dairies and Fine Besteel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Maeil Dairies and Fine Besteel
The main advantage of trading using opposite Maeil Dairies and Fine Besteel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Maeil Dairies position performs unexpectedly, Fine Besteel 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 Fine Besteel will offset losses from the drop in Fine Besteel's long position.The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Maeil Dairies as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Maeil Dairies' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Maeil Dairies' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Maeil Dairies Co.
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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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