Correlation Between Danal Co and Busan Industrial

Can any of the company-specific risk be diversified away by investing in both Danal Co and Busan Industrial 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 Danal Co and Busan Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Danal Co and Busan Industrial

0.69

Correlation Coefficient

Danal Co  Busan Industrial

Poor diversification

The 3 months correlation between Danal and Busan is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Danal Co and Busan Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Busan Industrial and Danal Co 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 Danal Co are associated (or correlated) with Busan Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Busan Industrial has no effect on the direction of Danal Co i.e., Danal Co and Busan Industrial go up and down completely randomly.

Pair Corralation between Danal Co and Busan Industrial

Assuming the 90 days trading horizon Danal Co is expected to generate 2.0 times more return on investment than Busan Industrial. However, Danal Co is 2.0 times more volatile than Busan Industrial Co. It trades about -0.11 of its potential returns per unit of risk. Busan Industrial Co is currently generating about -0.25 per unit of risk. If you would invest  433,000  in Danal Co on February 5, 2024 and sell it today you would lose (40,000) from holding Danal Co or give up 9.24% of portfolio value over 90 days.

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

Danal Co  vs.  Busan Industrial Co

Danal Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danal Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Danal Co is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Busan Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Busan Industrial 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 Danal Co and Busan Industrial

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

The idea behind Danal Co and Busan Industrial 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.