Correlation Between Lotte Energy and NH Investment

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

Diversification Opportunities for Lotte Energy and NH Investment

-0.01

Correlation Coefficient

Lotte Energy  NH Investment

Good diversification

The 3 months correlation between Lotte and 005940 is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Energy Materials and NH Investment Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NH Investment Securities 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 NH Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NH Investment Securities has no effect on the direction of Lotte Energy i.e., Lotte Energy and NH Investment go up and down completely randomly.

Pair Corralation between Lotte Energy and NH Investment

Assuming the 90 days trading horizon Lotte Energy Materials is expected to under-perform the NH Investment. In addition to that, Lotte Energy is 2.27 times more volatile than NH Investment Securities. It trades about -0.03 of its total potential returns per unit of risk. NH Investment Securities is currently generating about 0.08 per unit of volatility. If you would invest  840,765  in NH Investment Securities on September 26, 2024 and sell it today you would earn a total of  584,235  from holding NH Investment Securities or generate 69.49% return on investment over 90 days.

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

Lotte Energy Materials  vs.  NH Investment Securities

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.

NH Investment Securities

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NH Investment Securities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NH Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lotte Energy and NH Investment

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

The idea behind Lotte Energy Materials and NH Investment Securities 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.