Correlation Between Lotte Chemical and SKC

Can any of the company-specific risk be diversified away by investing in both Lotte Chemical and SKC 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 Chemical and SKC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lotte Chemical Corp and SKC Co, you can compare the effects of market volatilities on Lotte Chemical and SKC 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 Chemical with a short position of SKC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Chemical and SKC.

Diversification Opportunities for Lotte Chemical and SKC

-0.44

Correlation Coefficient

Lotte Chemical  SKC

Very good diversification

The 3 months correlation between Lotte and SKC is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Corp and SKC Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SKC Co and Lotte Chemical 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 Chemical Corp are associated (or correlated) with SKC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SKC Co has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and SKC go up and down completely randomly.

Pair Corralation between Lotte Chemical and SKC

Assuming the 90 days trading horizon Lotte Chemical is expected to generate 10.31 times less return on investment than SKC. But when comparing it to its historical volatility, Lotte Chemical Corp is 1.48 times less risky than SKC. It trades about 0.02 of its potential returns per unit of risk. SKC Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  9,830,000  in SKC Co on December 1, 2024 and sell it today you would earn a total of  3,170,000  from holding SKC Co or generate 32.25% return on investment over 90 days.

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

Lotte Chemical Corp  vs.  SKC Co

Lotte Chemical Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Chemical Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lotte Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SKC Co

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SKC Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SKC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Chemical and SKC

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

The idea behind Lotte Chemical Corp and SKC 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.