Correlation Between Lotte Chilsung and PlayD Co

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

Diversification Opportunities for Lotte Chilsung and PlayD Co

-0.49

Correlation Coefficient

Lotte Chilsung  PlayD Co

Very good diversification

The 3 months correlation between Lotte and PlayD is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chilsung Beverage and PlayD Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PlayD 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 PlayD Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PlayD Co has no effect on the direction of Lotte Chilsung i.e., Lotte Chilsung and PlayD Co go up and down completely randomly.

Pair Corralation between Lotte Chilsung and PlayD Co

Assuming the 90 days trading horizon Lotte Chilsung Beverage is expected to under-perform the PlayD Co. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Chilsung Beverage is 1.45 times less risky than PlayD Co. The stock trades about -0.17 of its potential returns per unit of risk. The PlayD Co is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  587,000  in PlayD Co on September 28, 2024 and sell it today you would lose (16,000) from holding PlayD Co or give up 2.73% 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.  PlayD Co

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.

PlayD Co

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PlayD Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PlayD Co sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Chilsung and PlayD Co

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

The idea behind Lotte Chilsung Beverage and PlayD 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.