Correlation Between Lotte Chilsung and HMM

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

Diversification Opportunities for Lotte Chilsung and HMM

-0.32

Correlation Coefficient

Lotte Chilsung  HMM

Very good diversification

The 3 months correlation between Lotte and HMM is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chilsung Beverage and HMM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMM Co 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 HMM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMM Co has no effect on the direction of Lotte Chilsung i.e., Lotte Chilsung and HMM go up and down completely randomly.

Pair Corralation between Lotte Chilsung and HMM

Assuming the 90 days trading horizon Lotte Chilsung is expected to generate 4.53 times less return on investment than HMM. But when comparing it to its historical volatility, Lotte Chilsung Beverage is 2.54 times less risky than HMM. It trades about 0.22 of its potential returns per unit of risk. HMM Co is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  1,769,280  in HMM Co on December 10, 2024 and sell it today you would earn a total of  445,720  from holding HMM Co or generate 25.19% return on investment over 90 days.

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

Lotte Chilsung Beverage  vs.  HMM Co

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 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.

HMM Co

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HMM Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HMM sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Chilsung and HMM

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

The idea behind Lotte Chilsung Beverage and HMM Co 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.