Correlation Between Dongkuk Steel and Lotte Fine

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

By analyzing existing cross correlation between Dongkuk Steel Mill and Lotte Fine Chemical, you can compare the effects of market volatilities on Dongkuk Steel and Lotte Fine 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 Dongkuk Steel with a short position of Lotte Fine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongkuk Steel and Lotte Fine.

Diversification Opportunities for Dongkuk Steel and Lotte Fine

0.15

Correlation Coefficient

Dongkuk Steel  Lotte Fine

Average diversification

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

Pair Corralation between Dongkuk Steel and Lotte Fine

Assuming the 90 days trading horizon Dongkuk Steel is expected to generate 3.49 times less return on investment than Lotte Fine. But when comparing it to its historical volatility, Dongkuk Steel Mill is 1.75 times less risky than Lotte Fine. It trades about 0.07 of its potential returns per unit of risk. Lotte Fine Chemical is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,470,000  in Lotte Fine Chemical on December 4, 2024 and sell it today you would earn a total of  580,000  from holding Lotte Fine Chemical or generate 16.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Dongkuk Steel Mill  vs.  Lotte Fine Chemical

Dongkuk Steel Mill

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongkuk Steel Mill are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dongkuk Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lotte Fine Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Fine Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lotte Fine sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongkuk Steel and Lotte Fine

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

The idea behind Dongkuk Steel Mill and Lotte Fine Chemical 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.