Correlation Between Namyang Dairy and Lotte Data

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

By analyzing existing cross correlation between Namyang Dairy and Lotte Data Communication, you can compare the effects of market volatilities on Namyang Dairy and Lotte Data 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 Namyang Dairy with a short position of Lotte Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Namyang Dairy and Lotte Data.

Diversification Opportunities for Namyang Dairy and Lotte Data

-0.25

Correlation Coefficient

Namyang Dairy  Lotte Data

Very good diversification

The 3 months correlation between Namyang and Lotte is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Namyang Dairy and Lotte Data Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Data Communication and Namyang Dairy 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 Namyang Dairy are associated (or correlated) with Lotte Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Data Communication has no effect on the direction of Namyang Dairy i.e., Namyang Dairy and Lotte Data go up and down completely randomly.

Pair Corralation between Namyang Dairy and Lotte Data

Assuming the 90 days trading horizon Namyang Dairy is expected to under-perform the Lotte Data. But the stock apears to be less risky and, when comparing its historical volatility, Namyang Dairy is 1.05 times less risky than Lotte Data. The stock trades about -0.21 of its potential returns per unit of risk. The Lotte Data Communication is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,020,000  in Lotte Data Communication on September 26, 2024 and sell it today you would lose (43,000) from holding Lotte Data Communication or give up 2.13% of portfolio value over 90 days.

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

Namyang Dairy  vs.  Lotte Data Communication

Namyang Dairy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Namyang Dairy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Namyang Dairy sustained solid returns over the last few months and may actually be approaching a breakup point.

Lotte Data Communication

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Data Communication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Namyang Dairy and Lotte Data

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

The idea behind Namyang Dairy and Lotte Data Communication 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.