Correlation Between Lotte Chilsung and Settlebank

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

Diversification Opportunities for Lotte Chilsung and Settlebank

0.56

Correlation Coefficient

Lotte Chilsung  Settlebank

Very weak diversification

The 3 months correlation between Lotte and Settlebank is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chilsung Beverage and Settlebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Settlebank 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 Settlebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Settlebank has no effect on the direction of Lotte Chilsung i.e., Lotte Chilsung and Settlebank go up and down completely randomly.

Pair Corralation between Lotte Chilsung and Settlebank

Assuming the 90 days trading horizon Lotte Chilsung Beverage is expected to generate 0.55 times more return on investment than Settlebank. However, Lotte Chilsung Beverage is 1.81 times less risky than Settlebank. It trades about -0.14 of its potential returns per unit of risk. Settlebank is currently generating about -0.09 per unit of risk. If you would invest  13,000,000  in Lotte Chilsung Beverage on September 30, 2024 and sell it today you would lose (1,720,000) from holding Lotte Chilsung Beverage or give up 13.23% of portfolio value over 90 days.

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

Lotte Chilsung Beverage  vs.  Settlebank

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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Settlebank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Settlebank 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lotte Chilsung and Settlebank

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

The idea behind Lotte Chilsung Beverage and Settlebank 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.