Correlation Between GM and Lotte Fine

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

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

Diversification Opportunities for GM and Lotte Fine

-0.84

Correlation Coefficient

GM  Lotte Fine

Pay attention - limited upside

The 3 months correlation between GM and Lotte is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lotte Fine Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Fine Chemical and GM 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 General Motors are associated (or correlated) with Lotte Fine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Fine Chemical has no effect on the direction of GM i.e., GM and Lotte Fine go up and down completely randomly.

Pair Corralation between GM and Lotte Fine

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Lotte Fine. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.17 times less risky than Lotte Fine. The stock trades about -0.15 of its potential returns per unit of risk. The Lotte Fine Chemical is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,740,000  in Lotte Fine Chemical on September 15, 2024 and sell it today you would earn a total of  230,000  from holding Lotte Fine Chemical or generate 6.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Lotte Fine Chemical

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Lotte Fine Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Fine Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

Pair Trading with GM and Lotte Fine

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

The idea behind General Motors and Lotte Fine Chemical 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.