Correlation Between Jeju Air and Lotte Energy

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

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

Diversification Opportunities for Jeju Air and Lotte Energy

-0.22

Correlation Coefficient

Jeju Air  Lotte Energy

Very good diversification

The 3 months correlation between Jeju and Lotte is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Jeju Air Co and Lotte Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Energy Materials and Jeju Air 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 Jeju Air Co are associated (or correlated) with Lotte Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Energy Materials has no effect on the direction of Jeju Air i.e., Jeju Air and Lotte Energy go up and down completely randomly.

Pair Corralation between Jeju Air and Lotte Energy

Assuming the 90 days trading horizon Jeju Air Co is expected to under-perform the Lotte Energy. But the stock apears to be less risky and, when comparing its historical volatility, Jeju Air Co is 1.98 times less risky than Lotte Energy. The stock trades about -0.16 of its potential returns per unit of risk. The Lotte Energy Materials is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,470,000  in Lotte Energy Materials on December 24, 2024 and sell it today you would earn a total of  125,000  from holding Lotte Energy Materials or generate 5.06% return on investment over 90 days.

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

Jeju Air Co  vs.  Lotte Energy Materials

Jeju Air

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jeju Air Co 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Lotte Energy Materials

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Energy Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lotte Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Jeju Air and Lotte Energy

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

The idea behind Jeju Air Co and Lotte Energy Materials 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.