Correlation Between Lotte Chemical and Gunawan Dianjaya

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

Diversification Opportunities for Lotte Chemical and Gunawan Dianjaya

0.75

Correlation Coefficient

Lotte Chemical  Gunawan Dianjaya

Poor diversification

The 3 months correlation between Lotte and Gunawan is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Titan and Gunawan Dianjaya Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gunawan Dianjaya Steel 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 Gunawan Dianjaya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gunawan Dianjaya Steel has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and Gunawan Dianjaya go up and down completely randomly.

Pair Corralation between Lotte Chemical and Gunawan Dianjaya

Assuming the 90 days trading horizon Lotte Chemical Titan is expected to generate 0.89 times more return on investment than Gunawan Dianjaya. However, Lotte Chemical Titan is 1.12 times less risky than Gunawan Dianjaya. It trades about -0.05 of its potential returns per unit of risk. Gunawan Dianjaya Steel is currently generating about -0.18 per unit of risk. If you would invest  18,800  in Lotte Chemical Titan on December 30, 2024 and sell it today you would lose (1,000.00) from holding Lotte Chemical Titan or give up 5.32% of portfolio value over 90 days.

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

Lotte Chemical Titan  vs.  Gunawan Dianjaya Steel

Lotte Chemical Titan

Risk-Adjusted Performance

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 quite persistent forward-looking signals, Lotte Chemical is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Gunawan Dianjaya Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gunawan Dianjaya Steel 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 forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Lotte Chemical and Gunawan Dianjaya

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

The idea behind Lotte Chemical Titan and Gunawan Dianjaya Steel 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.