Correlation Between VAIV and Lotte Rental

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

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

Diversification Opportunities for VAIV and Lotte Rental

0.04

Correlation Coefficient

VAIV  Lotte Rental

Significant diversification

The 3 months correlation between VAIV and Lotte is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding VAIV Co and Lotte Rental Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Rental and VAIV 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 VAIV Co are associated (or correlated) with Lotte Rental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Rental has no effect on the direction of VAIV i.e., VAIV and Lotte Rental go up and down completely randomly.

Pair Corralation between VAIV and Lotte Rental

Assuming the 90 days trading horizon VAIV Co is expected to generate 1.91 times more return on investment than Lotte Rental. However, VAIV is 1.91 times more volatile than Lotte Rental Co. It trades about 0.03 of its potential returns per unit of risk. Lotte Rental Co is currently generating about -0.02 per unit of risk. If you would invest  412,000  in VAIV Co on October 24, 2024 and sell it today you would earn a total of  9,500  from holding VAIV Co or generate 2.31% return on investment over 90 days.

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

VAIV Co  vs.  Lotte Rental Co

VAIV

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VAIV Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, VAIV may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lotte Rental

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with VAIV and Lotte Rental

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

The idea behind VAIV Co and Lotte Rental Co 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.