Correlation Between Lotte Chilsung and Korea Refract

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

Diversification Opportunities for Lotte Chilsung and Korea Refract

0.61

Correlation Coefficient

Lotte Chilsung  Korea Refract

Poor diversification

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

Pair Corralation between Lotte Chilsung and Korea Refract

Assuming the 90 days trading horizon Lotte Chilsung Beverage is expected to generate 1.01 times more return on investment than Korea Refract. However, Lotte Chilsung is 1.01 times more volatile than Korea Refract. It trades about -0.07 of its potential returns per unit of risk. Korea Refract is currently generating about -0.07 per unit of risk. If you would invest  14,790,000  in Lotte Chilsung Beverage on October 5, 2024 and sell it today you would lose (3,950,000) from holding Lotte Chilsung Beverage or give up 26.71% of portfolio value over 90 days.

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

Lotte Chilsung Beverage  vs.  Korea Refract

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Korea Refract

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Refract has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Korea Refract 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 Korea Refract

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

The idea behind Lotte Chilsung Beverage and Korea Refract 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.