Correlation Between Lotte Chilsung and Sung Bo

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

Diversification Opportunities for Lotte Chilsung and Sung Bo

-0.54

Correlation Coefficient

Lotte Chilsung  Sung Bo

Excellent diversification

The 3 months correlation between Lotte and Sung is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chilsung Beverage and Sung Bo Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sung Bo Chemicals 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 Sung Bo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sung Bo Chemicals has no effect on the direction of Lotte Chilsung i.e., Lotte Chilsung and Sung Bo go up and down completely randomly.

Pair Corralation between Lotte Chilsung and Sung Bo

Assuming the 90 days trading horizon Lotte Chilsung Beverage is expected to under-perform the Sung Bo. In addition to that, Lotte Chilsung is 1.02 times more volatile than Sung Bo Chemicals. It trades about -0.04 of its total potential returns per unit of risk. Sung Bo Chemicals is currently generating about -0.01 per unit of volatility. If you would invest  290,273  in Sung Bo Chemicals on October 23, 2024 and sell it today you would lose (36,273) from holding Sung Bo Chemicals or give up 12.5% of portfolio value over 90 days.

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

Lotte Chilsung Beverage  vs.  Sung Bo Chemicals

Lotte Chilsung Beverage

Risk-Adjusted Performance

0 of 100

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.

Sung Bo Chemicals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sung Bo Chemicals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sung Bo 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 Sung Bo

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

The idea behind Lotte Chilsung Beverage and Sung Bo Chemicals 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.