Correlation Between Lotte Fine and Digital Imaging

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

Diversification Opportunities for Lotte Fine and Digital Imaging

0.61

Correlation Coefficient

Lotte Fine  Digital Imaging

Poor diversification

The 3 months correlation between Lotte and Digital is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Fine Chemical and Digital Imaging Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Imaging Tech 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 Digital Imaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Imaging Tech has no effect on the direction of Lotte Fine i.e., Lotte Fine and Digital Imaging go up and down completely randomly.

Pair Corralation between Lotte Fine and Digital Imaging

Assuming the 90 days trading horizon Lotte Fine Chemical is expected to under-perform the Digital Imaging. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Fine Chemical is 2.88 times less risky than Digital Imaging. The stock trades about -0.01 of its potential returns per unit of risk. The Digital Imaging Technology is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  1,290,000  in Digital Imaging Technology on October 25, 2024 and sell it today you would earn a total of  534,000  from holding Digital Imaging Technology or generate 41.4% return on investment over 90 days.

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

Lotte Fine Chemical  vs.  Digital Imaging Technology

Lotte Fine Chemical

Risk-Adjusted Performance

0 of 100

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.

Digital Imaging Tech

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Lotte Fine and Digital Imaging

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

The idea behind Lotte Fine Chemical and Digital Imaging Technology 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 Transaction History module to view history of all your transactions and understand their impact on performance.