Correlation Between Neo Cremar and Maeil Dairies
Can any of the company-specific risk be diversified away by investing in both Neo Cremar and Maeil Dairies 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 Neo Cremar and Maeil Dairies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Neo Cremar Co and Maeil Dairies Co, you can compare the effects of market volatilities on Neo Cremar and Maeil Dairies 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 Neo Cremar with a short position of Maeil Dairies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Neo Cremar and Maeil Dairies.
Diversification Opportunities for Neo Cremar and Maeil Dairies
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Neo and Maeil is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Neo Cremar Co and Maeil Dairies Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maeil Dairies and Neo Cremar 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 Neo Cremar Co are associated (or correlated) with Maeil Dairies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maeil Dairies has no effect on the direction of Neo Cremar i.e., Neo Cremar and Maeil Dairies go up and down completely randomly.
Pair Corralation between Neo Cremar and Maeil Dairies
Assuming the 90 days trading horizon Neo Cremar Co is expected to generate 1.87 times more return on investment than Maeil Dairies. However, Neo Cremar is 1.87 times more volatile than Maeil Dairies Co. It trades about -0.02 of its potential returns per unit of risk. Maeil Dairies Co is currently generating about -0.05 per unit of risk. If you would invest 901,000 in Neo Cremar Co on October 23, 2024 and sell it today you would lose (312,000) from holding Neo Cremar Co or give up 34.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
Neo Cremar Co vs. Maeil Dairies Co
Performance |
| Timeline |
| Neo Cremar |
| Maeil Dairies |
Neo Cremar and Maeil Dairies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Neo Cremar and Maeil Dairies
The main advantage of trading using opposite Neo Cremar and Maeil Dairies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Neo Cremar position performs unexpectedly, Maeil Dairies 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 Maeil Dairies will offset losses from the drop in Maeil Dairies' long position.| Neo Cremar vs. Korean Reinsurance Co | Neo Cremar vs. Hanjoo Light Metal | Neo Cremar vs. PJ Metal Co | Neo Cremar vs. Daejung Chemicals Metals |
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.
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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