Correlation Between Miwon Chemical and Daejung Chemicals

Can any of the company-specific risk be diversified away by investing in both Miwon Chemical and Daejung Chemicals 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 Miwon Chemical and Daejung Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Miwon Chemical and Daejung Chemicals Metals, you can compare the effects of market volatilities on Miwon Chemical and Daejung Chemicals 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 Miwon Chemical with a short position of Daejung Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Miwon Chemical and Daejung Chemicals.

Diversification Opportunities for Miwon Chemical and Daejung Chemicals

-0.43

Correlation Coefficient

Miwon Chemical  Daejung Chemicals

Very good diversification

The 3 months correlation between Miwon and Daejung is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Miwon Chemical and Daejung Chemicals Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daejung Chemicals Metals and Miwon Chemical 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 Miwon Chemical are associated (or correlated) with Daejung Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daejung Chemicals Metals has no effect on the direction of Miwon Chemical i.e., Miwon Chemical and Daejung Chemicals go up and down completely randomly.

Pair Corralation between Miwon Chemical and Daejung Chemicals

Assuming the 90 days trading horizon Miwon Chemical is expected to generate 1.96 times more return on investment than Daejung Chemicals. However, Miwon Chemical is 1.96 times more volatile than Daejung Chemicals Metals. It trades about 0.49 of its potential returns per unit of risk. Daejung Chemicals Metals is currently generating about -0.25 per unit of risk. If you would invest  7,150,000  in Miwon Chemical on February 26, 2024 and sell it today you would earn a total of  650,000  from holding Miwon Chemical or generate 9.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Miwon Chemical  vs.  Daejung Chemicals Metals

Miwon Chemical

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Miwon Chemical are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Miwon Chemical may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Daejung Chemicals Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daejung Chemicals Metals 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 Miwon Chemical and Daejung Chemicals

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

The idea behind Miwon Chemical and Daejung Chemicals Metals 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.