Correlation Between Lotte Data and Home Center

Can any of the company-specific risk be diversified away by investing in both Lotte Data and Home Center 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 Home Center 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 Home Center Holdings, you can compare the effects of market volatilities on Lotte Data and Home Center 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 Home Center. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Data and Home Center.

Diversification Opportunities for Lotte Data and Home Center

0.22

Correlation Coefficient

Lotte Data  Home Center

Modest diversification

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

Pair Corralation between Lotte Data and Home Center

Assuming the 90 days trading horizon Lotte Data is expected to generate 5.06 times less return on investment than Home Center. But when comparing it to its historical volatility, Lotte Data Communication is 2.62 times less risky than Home Center. It trades about 0.03 of its potential returns per unit of risk. Home Center Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  74,560  in Home Center Holdings on December 1, 2024 and sell it today you would earn a total of  6,540  from holding Home Center Holdings or generate 8.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	70.69%
Values	Daily Returns

Lotte Data Communication  vs.  Home Center Holdings

Lotte Data Communication

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Data Communication are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Home Center Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home Center Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Home Center sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Data and Home Center

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

The idea behind Lotte Data Communication and Home Center 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.