Correlation Between Samsung Life and Lotte Fine

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

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

Diversification Opportunities for Samsung Life and Lotte Fine

-0.63

Correlation Coefficient

Samsung Life  Lotte Fine

Excellent diversification

The 3 months correlation between Samsung and Lotte is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Samsung Life Insurance 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 Samsung Life 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 Samsung Life Insurance 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 Samsung Life i.e., Samsung Life and Lotte Fine go up and down completely randomly.

Pair Corralation between Samsung Life and Lotte Fine

Assuming the 90 days trading horizon Samsung Life Insurance is expected to under-perform the Lotte Fine. But the stock apears to be less risky and, when comparing its historical volatility, Samsung Life Insurance is 1.26 times less risky than Lotte Fine. The stock trades about -0.1 of its potential returns per unit of risk. The Lotte Fine Chemical is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,690,000  in Lotte Fine Chemical on September 22, 2024 and sell it today you would earn a total of  265,000  from holding Lotte Fine Chemical or generate 7.18% return on investment over 90 days.

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

Samsung Life Insurance  vs.  Lotte Fine Chemical

Samsung Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Samsung Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Samsung Life is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 Samsung Life and Lotte Fine

The main advantage of trading using opposite Samsung Life and Lotte Fine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Samsung Life 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 Samsung Life Insurance 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.