Correlation Between Lotte Chemical and KPJ Healthcare

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

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

Diversification Opportunities for Lotte Chemical and KPJ Healthcare

-0.9

Correlation Coefficient

Lotte Chemical  KPJ Healthcare

Pay attention - limited upside

The 3 months correlation between Lotte and KPJ is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Titan and KPJ Healthcare Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KPJ Healthcare Bhd and Lotte Chemical 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 Chemical Titan are associated (or correlated) with KPJ Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KPJ Healthcare Bhd has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and KPJ Healthcare go up and down completely randomly.

Pair Corralation between Lotte Chemical and KPJ Healthcare

Assuming the 90 days trading horizon Lotte Chemical Titan is expected to under-perform the KPJ Healthcare. In addition to that, Lotte Chemical is 1.27 times more volatile than KPJ Healthcare Bhd. It trades about -0.13 of its total potential returns per unit of risk. KPJ Healthcare Bhd is currently generating about -0.07 per unit of volatility. If you would invest  249.00  in KPJ Healthcare Bhd on September 29, 2024 and sell it today you would lose (11.00) from holding KPJ Healthcare Bhd or give up 4.42% of portfolio value over 90 days.

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

Lotte Chemical Titan  vs.  KPJ Healthcare Bhd

Lotte Chemical Titan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Chemical Titan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

KPJ Healthcare Bhd

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KPJ Healthcare Bhd are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, KPJ Healthcare disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Chemical and KPJ Healthcare

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

The idea behind Lotte Chemical Titan and KPJ Healthcare Bhd 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.