Correlation Between Hwashin Precision and Daedong Metals

Can any of the company-specific risk be diversified away by investing in both Hwashin Precision and Daedong Metals 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 Hwashin Precision and Daedong Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hwashin Precision Engineering and Daedong Metals Co, you can compare the effects of market volatilities on Hwashin Precision and Daedong Metals 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 Hwashin Precision with a short position of Daedong Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hwashin Precision and Daedong Metals.

Diversification Opportunities for Hwashin Precision and Daedong Metals

0.89

Correlation Coefficient

Hwashin Precision  Daedong Metals

Very poor diversification

The 3 months correlation between Hwashin and Daedong is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Hwashin Precision Engineering and Daedong Metals Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daedong Metals and Hwashin Precision 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 Hwashin Precision Engineering are associated (or correlated) with Daedong Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daedong Metals has no effect on the direction of Hwashin Precision i.e., Hwashin Precision and Daedong Metals go up and down completely randomly.

Pair Corralation between Hwashin Precision and Daedong Metals

Assuming the 90 days trading horizon Hwashin Precision Engineering is expected to generate 0.5 times more return on investment than Daedong Metals. However, Hwashin Precision Engineering is 2.0 times less risky than Daedong Metals. It trades about -0.24 of its potential returns per unit of risk. Daedong Metals Co is currently generating about -0.13 per unit of risk. If you would invest  166,100  in Hwashin Precision Engineering on February 16, 2024 and sell it today you would lose (16,800) from holding Hwashin Precision Engineering or give up 10.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Hwashin Precision Engineering  vs.  Daedong Metals Co

Hwashin Precision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hwashin Precision Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Daedong Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daedong Metals Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Hwashin Precision and Daedong Metals

The main advantage of trading using opposite Hwashin Precision and Daedong Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hwashin Precision position performs unexpectedly, Daedong Metals 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 Daedong Metals will offset losses from the drop in Daedong Metals' long position.

The idea behind Hwashin Precision Engineering and Daedong Metals 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.