Correlation Between Innowireless and Lotte Fine

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

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

Diversification Opportunities for Innowireless and Lotte Fine

-0.6

Correlation Coefficient

Innowireless  Lotte Fine

Excellent diversification

The 3 months correlation between Innowireless and Lotte is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Innowireless 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 Innowireless 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 Innowireless 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 Innowireless i.e., Innowireless and Lotte Fine go up and down completely randomly.

Pair Corralation between Innowireless and Lotte Fine

Assuming the 90 days trading horizon Innowireless is expected to generate 2.41 times less return on investment than Lotte Fine. But when comparing it to its historical volatility, Innowireless Co is 1.2 times less risky than Lotte Fine. It trades about 0.18 of its potential returns per unit of risk. Lotte Fine Chemical is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  3,390,000  in Lotte Fine Chemical on October 6, 2024 and sell it today you would earn a total of  680,000  from holding Lotte Fine Chemical or generate 20.06% return on investment over 90 days.

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

Innowireless Co  vs.  Lotte Fine Chemical

Innowireless

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Innowireless Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Innowireless sustained solid returns over the last few months and may actually be approaching a breakup point.

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 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 Innowireless and Lotte Fine

The main advantage of trading using opposite Innowireless and Lotte Fine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innowireless 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 Innowireless 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.