Correlation Between Busan Ind and Lotte Non

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

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

Diversification Opportunities for Busan Ind and Lotte Non

-0.58

Correlation Coefficient

Busan Ind  Lotte Non

Excellent diversification

The 3 months correlation between Busan and Lotte is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Busan Ind and Lotte Non Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Non Life and Busan Ind 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 Busan Ind are associated (or correlated) with Lotte Non. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Non Life has no effect on the direction of Busan Ind i.e., Busan Ind and Lotte Non go up and down completely randomly.

Pair Corralation between Busan Ind and Lotte Non

Assuming the 90 days trading horizon Busan Ind is expected to generate 2.73 times less return on investment than Lotte Non. But when comparing it to its historical volatility, Busan Ind is 1.2 times less risky than Lotte Non. It trades about 0.01 of its potential returns per unit of risk. Lotte Non Life is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  153,000  in Lotte Non Life on October 5, 2024 and sell it today you would earn a total of  48,500  from holding Lotte Non Life or generate 31.7% return on investment over 90 days.

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

Busan Ind  vs.  Lotte Non Life

Busan Ind

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Busan Ind are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Busan Ind sustained solid returns over the last few months and may actually be approaching a breakup point.

Lotte Non Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Non Life 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.

Pair Trading with Busan Ind and Lotte Non

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

The idea behind Busan Ind and Lotte Non Life 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.