Correlation Between Lotte Chilsung and Hyundai Engineering

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

Diversification Opportunities for Lotte Chilsung and Hyundai Engineering

0.36
  Correlation Coefficient

Weak diversification

The 3 months correlation between Lotte and Hyundai is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chilsung Beverage and Hyundai Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Engineering and Lotte Chilsung 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 Chilsung Beverage are associated (or correlated) with Hyundai Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Engineering has no effect on the direction of Lotte Chilsung i.e., Lotte Chilsung and Hyundai Engineering go up and down completely randomly.

Pair Corralation between Lotte Chilsung and Hyundai Engineering

Assuming the 90 days trading horizon Lotte Chilsung Beverage is expected to under-perform the Hyundai Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Chilsung Beverage is 1.14 times less risky than Hyundai Engineering. The stock trades about -0.12 of its potential returns per unit of risk. The Hyundai Engineering Construction is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,850,000  in Hyundai Engineering Construction on October 23, 2024 and sell it today you would lose (215,000) from holding Hyundai Engineering Construction or give up 7.54% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Lotte Chilsung Beverage  vs.  Hyundai Engineering Constructi

 Performance 
       Timeline  
Lotte Chilsung Beverage 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lotte Chilsung Beverage 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.
Hyundai Engineering 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Hyundai Engineering Construction 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 Chilsung and Hyundai Engineering Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lotte Chilsung and Hyundai Engineering

The main advantage of trading using opposite Lotte Chilsung and Hyundai Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Chilsung position performs unexpectedly, Hyundai Engineering 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 Hyundai Engineering will offset losses from the drop in Hyundai Engineering's long position.
The idea behind Lotte Chilsung Beverage and Hyundai Engineering Construction 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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