Correlation Between Agha Steel and Lotte Chemical

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

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

Diversification Opportunities for Agha Steel and Lotte Chemical

0.6

Correlation Coefficient

Agha Steel  Lotte Chemical

Poor diversification

The 3 months correlation between Agha and Lotte is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Agha Steel Industries and Lotte Chemical Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Chemical Pakistan and Agha Steel 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 Agha Steel Industries are associated (or correlated) with Lotte Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Chemical Pakistan has no effect on the direction of Agha Steel i.e., Agha Steel and Lotte Chemical go up and down completely randomly.

Pair Corralation between Agha Steel and Lotte Chemical

Assuming the 90 days trading horizon Agha Steel Industries is expected to under-perform the Lotte Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Agha Steel Industries is 1.07 times less risky than Lotte Chemical. The stock trades about -0.06 of its potential returns per unit of risk. The Lotte Chemical Pakistan is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,056  in Lotte Chemical Pakistan on December 23, 2024 and sell it today you would lose (78.00) from holding Lotte Chemical Pakistan or give up 3.79% of portfolio value over 90 days.

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

Agha Steel Industries  vs.  Lotte Chemical Pakistan

Agha Steel Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Agha Steel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Lotte Chemical Pakistan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lotte Chemical Pakistan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Lotte Chemical is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Agha Steel and Lotte Chemical

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

The idea behind Agha Steel Industries and Lotte Chemical Pakistan 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.