Correlation Between Lotte Chilsung and Dongkuk Steel

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

Diversification Opportunities for Lotte Chilsung and Dongkuk Steel

0.52

Correlation Coefficient

Lotte Chilsung  Dongkuk Steel

Very weak diversification

The 3 months correlation between Lotte and Dongkuk is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chilsung Beverage and Dongkuk Steel Mill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongkuk Steel Mill 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 Dongkuk Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongkuk Steel Mill has no effect on the direction of Lotte Chilsung i.e., Lotte Chilsung and Dongkuk Steel go up and down completely randomly.

Pair Corralation between Lotte Chilsung and Dongkuk Steel

Assuming the 90 days trading horizon Lotte Chilsung is expected to generate 3.83 times less return on investment than Dongkuk Steel. In addition to that, Lotte Chilsung is 1.23 times more volatile than Dongkuk Steel Mill. It trades about 0.01 of its total potential returns per unit of risk. Dongkuk Steel Mill is currently generating about 0.04 per unit of volatility. If you would invest  697,430  in Dongkuk Steel Mill on December 29, 2024 and sell it today you would earn a total of  16,570  from holding Dongkuk Steel Mill or generate 2.38% return on investment over 90 days.

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

Lotte Chilsung Beverage  vs.  Dongkuk Steel Mill

Lotte Chilsung Beverage

Risk-Adjusted Performance

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 somewhat strong basic indicators, Lotte Chilsung is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dongkuk Steel Mill

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongkuk Steel Mill are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dongkuk Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lotte Chilsung and Dongkuk Steel

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

The idea behind Lotte Chilsung Beverage and Dongkuk Steel Mill 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.