Correlation Between Lake Materials and Namhae Chemical

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

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

Diversification Opportunities for Lake Materials and Namhae Chemical

0.56

Correlation Coefficient

Lake Materials  Namhae Chemical

Very weak diversification

The 3 months correlation between Lake and Namhae is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Lake Materials Co and Namhae Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Namhae Chemical and Lake Materials 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 Lake Materials Co are associated (or correlated) with Namhae Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Namhae Chemical has no effect on the direction of Lake Materials i.e., Lake Materials and Namhae Chemical go up and down completely randomly.

Pair Corralation between Lake Materials and Namhae Chemical

Assuming the 90 days trading horizon Lake Materials Co is expected to generate 3.95 times more return on investment than Namhae Chemical. However, Lake Materials is 3.95 times more volatile than Namhae Chemical. It trades about 0.17 of its potential returns per unit of risk. Namhae Chemical is currently generating about 0.09 per unit of risk. If you would invest  1,160,752  in Lake Materials Co on November 20, 2024 and sell it today you would earn a total of  590,248  from holding Lake Materials Co or generate 50.85% return on investment over 90 days.

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

Lake Materials Co  vs.  Namhae Chemical

Lake Materials

Risk-Adjusted Performance

Good

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

Namhae Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Namhae Chemical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Namhae Chemical may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Lake Materials and Namhae Chemical

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

The idea behind Lake Materials Co and Namhae 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.