Correlation Between Lotte Data and POSCO Holdings

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

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

Diversification Opportunities for Lotte Data and POSCO Holdings

-0.11

Correlation Coefficient

Lotte Data  POSCO Holdings

Good diversification

The 3 months correlation between Lotte and POSCO is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Data Communication and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings and Lotte Data 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 Data Communication are associated (or correlated) with POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of Lotte Data i.e., Lotte Data and POSCO Holdings go up and down completely randomly.

Pair Corralation between Lotte Data and POSCO Holdings

Assuming the 90 days trading horizon Lotte Data is expected to generate 98.68 times less return on investment than POSCO Holdings. But when comparing it to its historical volatility, Lotte Data Communication is 1.68 times less risky than POSCO Holdings. It trades about 0.0 of its potential returns per unit of risk. POSCO Holdings is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  25,967,700  in POSCO Holdings on December 23, 2024 and sell it today you would earn a total of  6,632,300  from holding POSCO Holdings or generate 25.54% return on investment over 90 days.

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

Lotte Data Communication  vs.  POSCO Holdings

Lotte Data Communication

Risk-Adjusted Performance

Very Weak

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

POSCO Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in POSCO Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, POSCO Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Data and POSCO Holdings

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

The idea behind Lotte Data Communication and POSCO Holdings 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..