Correlation Between Lotte Energy and Taeyang Metal

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

By analyzing existing cross correlation between Lotte Energy Materials and Taeyang Metal Industrial, you can compare the effects of market volatilities on Lotte Energy and Taeyang Metal 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 Energy with a short position of Taeyang Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Energy and Taeyang Metal.

Diversification Opportunities for Lotte Energy and Taeyang Metal

0.12

Correlation Coefficient

Lotte Energy  Taeyang Metal

Average diversification

The 3 months correlation between Lotte and Taeyang is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Energy Materials and Taeyang Metal Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taeyang Metal Industrial and Lotte Energy 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 Energy Materials are associated (or correlated) with Taeyang Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taeyang Metal Industrial has no effect on the direction of Lotte Energy i.e., Lotte Energy and Taeyang Metal go up and down completely randomly.

Pair Corralation between Lotte Energy and Taeyang Metal

Assuming the 90 days trading horizon Lotte Energy Materials is expected to under-perform the Taeyang Metal. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Energy Materials is 1.77 times less risky than Taeyang Metal. The stock trades about -0.3 of its potential returns per unit of risk. The Taeyang Metal Industrial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  463,500  in Taeyang Metal Industrial on September 12, 2024 and sell it today you would earn a total of  87,500  from holding Taeyang Metal Industrial or generate 18.88% return on investment over 90 days.

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

Lotte Energy Materials  vs.  Taeyang Metal Industrial

Lotte Energy Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Energy Materials 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.

Taeyang Metal Industrial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taeyang Metal Industrial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Taeyang Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Energy and Taeyang Metal

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

The idea behind Lotte Energy Materials and Taeyang Metal Industrial 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 Stocks Directory module to find actively traded stocks across global markets.