Correlation Between Daejung Chemicals and LS Materials

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

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

Diversification Opportunities for Daejung Chemicals and LS Materials

0.15

Correlation Coefficient

Daejung Chemicals  LS Materials

Average diversification

The 3 months correlation between Daejung and 417200 is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Daejung Chemicals Metals and LS Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LS Materials and Daejung Chemicals 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 Daejung Chemicals Metals are associated (or correlated) with LS Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LS Materials has no effect on the direction of Daejung Chemicals i.e., Daejung Chemicals and LS Materials go up and down completely randomly.

Pair Corralation between Daejung Chemicals and LS Materials

Assuming the 90 days trading horizon Daejung Chemicals is expected to generate 77.14 times less return on investment than LS Materials. But when comparing it to its historical volatility, Daejung Chemicals Metals is 10.57 times less risky than LS Materials. It trades about 0.01 of its potential returns per unit of risk. LS Materials is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  599,449  in LS Materials on March 19, 2024 and sell it today you would earn a total of  1,960,551  from holding LS Materials or generate 327.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	22.97%
Values	Daily Returns

Daejung Chemicals Metals  vs.  LS Materials

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.

LS Materials

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LS Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LS Materials may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Daejung Chemicals and LS Materials

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

The idea behind Daejung Chemicals Metals and LS Materials 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.