Correlation Between Lotte Fine and Dongbu Insurance

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Can any of the company-specific risk be diversified away by investing in both Lotte Fine and Dongbu Insurance 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 Fine and Dongbu Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lotte Fine Chemical and Dongbu Insurance Co, you can compare the effects of market volatilities on Lotte Fine and Dongbu Insurance 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 Fine with a short position of Dongbu Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Fine and Dongbu Insurance.

Diversification Opportunities for Lotte Fine and Dongbu Insurance

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Lotte and Dongbu is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Fine Chemical and Dongbu Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbu Insurance and Lotte Fine 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 Fine Chemical are associated (or correlated) with Dongbu Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbu Insurance has no effect on the direction of Lotte Fine i.e., Lotte Fine and Dongbu Insurance go up and down completely randomly.

Pair Corralation between Lotte Fine and Dongbu Insurance

Assuming the 90 days trading horizon Lotte Fine Chemical is expected to generate 1.02 times more return on investment than Dongbu Insurance. However, Lotte Fine is 1.02 times more volatile than Dongbu Insurance Co. It trades about 0.12 of its potential returns per unit of risk. Dongbu Insurance Co is currently generating about -0.09 per unit of risk. If you would invest  3,690,000  in Lotte Fine Chemical on September 22, 2024 and sell it today you would earn a total of  265,000  from holding Lotte Fine Chemical or generate 7.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Lotte Fine Chemical  vs.  Dongbu Insurance Co

 Performance 
       Timeline  
Lotte Fine Chemical 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lotte Fine Chemical 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.
Dongbu Insurance 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Dongbu Insurance 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.

Lotte Fine and Dongbu Insurance Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lotte Fine and Dongbu Insurance

The main advantage of trading using opposite Lotte Fine and Dongbu Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Fine position performs unexpectedly, Dongbu Insurance 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 Dongbu Insurance will offset losses from the drop in Dongbu Insurance's long position.
The idea behind Lotte Fine Chemical and Dongbu Insurance 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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