Correlation Between Microfriend and Lotte Energy

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

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

Diversification Opportunities for Microfriend and Lotte Energy

0.87

Correlation Coefficient

Microfriend  Lotte Energy

Very poor diversification

The 3 months correlation between Microfriend and Lotte is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend 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 Microfriend 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 Microfriend 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 Microfriend i.e., Microfriend and Lotte Energy go up and down completely randomly.

Pair Corralation between Microfriend and Lotte Energy

Assuming the 90 days trading horizon Microfriend is expected to generate 0.87 times more return on investment than Lotte Energy. However, Microfriend is 1.15 times less risky than Lotte Energy. It trades about -0.21 of its potential returns per unit of risk. Lotte Energy Materials is currently generating about -0.21 per unit of risk. If you would invest  415,000  in Microfriend on October 6, 2024 and sell it today you would lose (117,500) from holding Microfriend or give up 28.31% of portfolio value over 90 days.

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

Microfriend  vs.  Lotte Energy Materials

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microfriend 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.

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Microfriend and Lotte Energy

The main advantage of trading using opposite Microfriend and Lotte Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microfriend 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 Microfriend 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.