Correlation Between Agritech and Lotte Chemical

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

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

Diversification Opportunities for Agritech and Lotte Chemical

0.1

Correlation Coefficient

Agritech  Lotte Chemical

Average diversification

The 3 months correlation between Agritech and Lotte is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Agritech 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 Agritech 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 Agritech 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 Agritech i.e., Agritech and Lotte Chemical go up and down completely randomly.

Pair Corralation between Agritech and Lotte Chemical

Assuming the 90 days trading horizon Agritech is expected to under-perform the Lotte Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Agritech is 1.93 times less risky than Lotte Chemical. The stock trades about -0.01 of its potential returns per unit of risk. The Lotte Chemical Pakistan is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,665  in Lotte Chemical Pakistan on October 8, 2024 and sell it today you would earn a total of  460.00  from holding Lotte Chemical Pakistan or generate 27.63% return on investment over 90 days.

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

Agritech  vs.  Lotte Chemical Pakistan

Agritech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Agritech has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Agritech is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Lotte Chemical Pakistan

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Chemical Pakistan are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical indicators, Lotte Chemical displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Agritech and Lotte Chemical

The main advantage of trading using opposite Agritech and Lotte Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agritech 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 Agritech 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.