Correlation Between Dongbu Steel and Lotte Fine

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

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

Diversification Opportunities for Dongbu Steel and Lotte Fine

0.18

Correlation Coefficient

Dongbu Steel  Lotte Fine

Average diversification

The 3 months correlation between Dongbu and Lotte is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Dongbu Steel Co and Lotte Fine Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Fine Chemical and Dongbu Steel 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 Dongbu Steel Co are associated (or correlated) with Lotte Fine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Fine Chemical has no effect on the direction of Dongbu Steel i.e., Dongbu Steel and Lotte Fine go up and down completely randomly.

Pair Corralation between Dongbu Steel and Lotte Fine

Assuming the 90 days trading horizon Dongbu Steel Co is expected to generate 0.91 times more return on investment than Lotte Fine. However, Dongbu Steel Co is 1.09 times less risky than Lotte Fine. It trades about -0.06 of its potential returns per unit of risk. Lotte Fine Chemical is currently generating about -0.07 per unit of risk. If you would invest  633,000  in Dongbu Steel Co on September 14, 2024 and sell it today you would lose (60,000) from holding Dongbu Steel Co or give up 9.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Dongbu Steel Co  vs.  Lotte Fine Chemical

Dongbu Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongbu Steel Co 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.

Lotte Fine Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Fine Chemical 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.

Pair Trading with Dongbu Steel and Lotte Fine

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

The idea behind Dongbu Steel Co and Lotte Fine Chemical 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.