Correlation Between Kosdaq Composite and Lotte Chilsung

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

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

Diversification Opportunities for Kosdaq Composite and Lotte Chilsung

-0.78

Correlation Coefficient

Kosdaq Composite  Lotte Chilsung

Pay attention - limited upside

The 3 months correlation between Kosdaq and Lotte is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Kosdaq Composite Index and Lotte Chilsung Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Chilsung Beverage and Kosdaq Composite 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 Kosdaq Composite Index are associated (or correlated) with Lotte Chilsung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Chilsung Beverage has no effect on the direction of Kosdaq Composite i.e., Kosdaq Composite and Lotte Chilsung go up and down completely randomly.

Pair Corralation between Kosdaq Composite and Lotte Chilsung

Assuming the 90 days trading horizon Kosdaq Composite Index is expected to generate 1.03 times more return on investment than Lotte Chilsung. However, Kosdaq Composite is 1.03 times more volatile than Lotte Chilsung Beverage. It trades about 0.15 of its potential returns per unit of risk. Lotte Chilsung Beverage is currently generating about -0.14 per unit of risk. If you would invest  67,819  in Kosdaq Composite Index on November 29, 2024 and sell it today you would earn a total of  9,231  from holding Kosdaq Composite Index or generate 13.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

Kosdaq Composite Index  vs.  Lotte Chilsung Beverage

Pair Trading with Kosdaq Composite and Lotte Chilsung

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

The idea behind Kosdaq Composite Index and Lotte Chilsung Beverage 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.