Correlation Between Lotte Data and Innodep

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

Diversification Opportunities for Lotte Data and Innodep

0.61

Correlation Coefficient

Lotte Data  Innodep

Poor diversification

The 3 months correlation between Lotte and Innodep is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Data Communication and Innodep in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innodep 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 Innodep. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innodep has no effect on the direction of Lotte Data i.e., Lotte Data and Innodep go up and down completely randomly.

Pair Corralation between Lotte Data and Innodep

Assuming the 90 days trading horizon Lotte Data is expected to generate 2.38 times less return on investment than Innodep. But when comparing it to its historical volatility, Lotte Data Communication is 1.29 times less risky than Innodep. It trades about 0.02 of its potential returns per unit of risk. Innodep is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  685,000  in Innodep on December 4, 2024 and sell it today you would earn a total of  19,000  from holding Innodep or generate 2.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Lotte Data Communication  vs.  Innodep

Lotte Data Communication

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Data Communication are ranked lower than 1 (%) 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.

Innodep

Risk-Adjusted Performance

Weak

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

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

The idea behind Lotte Data Communication and Innodep 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.