Correlation Between Lotte Chemical and PT Hatten

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

Diversification Opportunities for Lotte Chemical and PT Hatten

0.58

Correlation Coefficient

Lotte Chemical  PT Hatten

Very weak diversification

The 3 months correlation between Lotte and WINE is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Titan and PT Hatten Bali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Hatten Bali 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 PT Hatten. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Hatten Bali has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and PT Hatten go up and down completely randomly.

Pair Corralation between Lotte Chemical and PT Hatten

Assuming the 90 days trading horizon Lotte Chemical is expected to generate 4.53 times less return on investment than PT Hatten. But when comparing it to its historical volatility, Lotte Chemical Titan is 1.3 times less risky than PT Hatten. It trades about 0.04 of its potential returns per unit of risk. PT Hatten Bali is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  25,600  in PT Hatten Bali on September 3, 2024 and sell it today you would earn a total of  9,400  from holding PT Hatten Bali or generate 36.72% return on investment over 90 days.

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

Lotte Chemical Titan  vs.  PT Hatten Bali

Lotte Chemical Titan

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Chemical Titan are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Lotte Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PT Hatten Bali

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PT Hatten Bali are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, PT Hatten disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Chemical and PT Hatten

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

The idea behind Lotte Chemical Titan and PT Hatten Bali 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.