Correlation Between Lotte Rental and Dongwon System

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

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

Diversification Opportunities for Lotte Rental and Dongwon System

-0.39

Correlation Coefficient

Lotte Rental  Dongwon System

Very good diversification

The 3 months correlation between Lotte and Dongwon is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Rental Co and Dongwon System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwon System and Lotte Rental 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 Rental Co are associated (or correlated) with Dongwon System. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongwon System has no effect on the direction of Lotte Rental i.e., Lotte Rental and Dongwon System go up and down completely randomly.

Pair Corralation between Lotte Rental and Dongwon System

Assuming the 90 days trading horizon Lotte Rental is expected to generate 2.93 times less return on investment than Dongwon System. But when comparing it to its historical volatility, Lotte Rental Co is 2.09 times less risky than Dongwon System. It trades about 0.03 of its potential returns per unit of risk. Dongwon System is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,191,284  in Dongwon System on October 4, 2024 and sell it today you would earn a total of  768,716  from holding Dongwon System or generate 24.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.69%
Values	Daily Returns

Lotte Rental Co  vs.  Dongwon System

Lotte Rental

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongwon System

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongwon System has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dongwon System 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 Rental and Dongwon System

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

The idea behind Lotte Rental Co and Dongwon System 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.