Correlation Between Lotte Non and Seohee Construction

Can any of the company-specific risk be diversified away by investing in both Lotte Non and Seohee Construction 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 Lotte Non and Seohee Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lotte Non Life Insurance and Seohee Construction Co, you can compare the effects of market volatilities on Lotte Non and Seohee Construction 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 Lotte Non with a short position of Seohee Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Non and Seohee Construction.

Diversification Opportunities for Lotte Non and Seohee Construction

0.78

Correlation Coefficient

Lotte Non  Seohee Construction

Poor diversification

The 3 months correlation between Lotte and Seohee is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Non Life Insurance and Seohee Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seohee Construction and Lotte Non 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 Lotte Non Life Insurance are associated (or correlated) with Seohee Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seohee Construction has no effect on the direction of Lotte Non i.e., Lotte Non and Seohee Construction go up and down completely randomly.

Pair Corralation between Lotte Non and Seohee Construction

Assuming the 90 days trading horizon Lotte Non Life Insurance is expected to under-perform the Seohee Construction. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Non Life Insurance is 1.0 times less risky than Seohee Construction. The stock trades about -0.12 of its potential returns per unit of risk. The Seohee Construction Co is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  159,500  in Seohee Construction Co on December 29, 2024 and sell it today you would lose (9,700) from holding Seohee Construction Co or give up 6.08% of portfolio value over 90 days.

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

Lotte Non Life Insurance  vs.  Seohee Construction Co

Lotte Non Life

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lotte Non Life Insurance 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.

Seohee Construction

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Lotte Non and Seohee Construction

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

The idea behind Lotte Non Life Insurance and Seohee Construction 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.