Correlation Between Dong A and South Basic
Can any of the company-specific risk be diversified away by investing in both Dong A and South Basic 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 Dong A and South Basic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dong A Hotel and South Basic Chemicals, you can compare the effects of market volatilities on Dong A and South Basic 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 Dong A with a short position of South Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dong A and South Basic.
Diversification Opportunities for Dong A and South Basic
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dong and South is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dong A Hotel and South Basic Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Basic Chemicals and Dong A 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 Dong A Hotel are associated (or correlated) with South Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Basic Chemicals has no effect on the direction of Dong A i.e., Dong A and South Basic go up and down completely randomly.
Pair Corralation between Dong A and South Basic
Assuming the 90 days trading horizon Dong A Hotel is expected to generate 1.29 times more return on investment than South Basic. However, Dong A is 1.29 times more volatile than South Basic Chemicals. It trades about -0.08 of its potential returns per unit of risk. South Basic Chemicals is currently generating about -0.17 per unit of risk. If you would invest 340,000 in Dong A Hotel on November 7, 2024 and sell it today you would lose (9,000) from holding Dong A Hotel or give up 2.65% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dong A Hotel vs. South Basic Chemicals
Performance |
| Timeline |
| Dong A Hotel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| South Basic Chemicals |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
Dong A and South Basic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dong A and South Basic
The main advantage of trading using opposite Dong A and South Basic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dong A position performs unexpectedly, South Basic 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 South Basic will offset losses from the drop in South Basic's long position.The idea behind Dong A Hotel and South Basic Chemicals 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.| South Basic vs. Elcom Technology Communications | South Basic vs. Innovative Technology Development | South Basic vs. HUD1 Investment and | South Basic vs. Transport and Industry |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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