Correlation Between Lotte Fine and PJ Electronics

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Can any of the company-specific risk be diversified away by investing in both Lotte Fine and PJ Electronics 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 PJ Electronics 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 PJ Electronics Co, you can compare the effects of market volatilities on Lotte Fine and PJ Electronics 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 PJ Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Fine and PJ Electronics.

Diversification Opportunities for Lotte Fine and PJ Electronics

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Lotte and 006140 is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Fine Chemical and PJ Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PJ Electronics 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 PJ Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PJ Electronics has no effect on the direction of Lotte Fine i.e., Lotte Fine and PJ Electronics go up and down completely randomly.

Pair Corralation between Lotte Fine and PJ Electronics

Assuming the 90 days trading horizon Lotte Fine Chemical is expected to generate 0.79 times more return on investment than PJ Electronics. However, Lotte Fine Chemical is 1.26 times less risky than PJ Electronics. It trades about -0.02 of its potential returns per unit of risk. PJ Electronics Co is currently generating about -0.02 per unit of risk. If you would invest  5,700,000  in Lotte Fine Chemical on October 24, 2024 and sell it today you would lose (1,615,000) from holding Lotte Fine Chemical or give up 28.33% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Lotte Fine Chemical  vs.  PJ Electronics 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.
PJ Electronics 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in PJ Electronics Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PJ Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lotte Fine and PJ Electronics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lotte Fine and PJ Electronics

The main advantage of trading using opposite Lotte Fine and PJ Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Fine position performs unexpectedly, PJ Electronics 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 PJ Electronics will offset losses from the drop in PJ Electronics' long position.
The idea behind Lotte Fine Chemical and PJ Electronics 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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