Correlation Between Lotte Chemical and Agritech

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

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

Diversification Opportunities for Lotte Chemical and Agritech

-0.36

Correlation Coefficient

Lotte Chemical  Agritech

Very good diversification

The 3 months correlation between Lotte and Agritech is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Pakistan and Agritech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agritech 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 Pakistan are associated (or correlated) with Agritech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agritech has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and Agritech go up and down completely randomly.

Pair Corralation between Lotte Chemical and Agritech

Assuming the 90 days trading horizon Lotte Chemical Pakistan is expected to under-perform the Agritech. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Chemical Pakistan is 2.27 times less risky than Agritech. The stock trades about -0.02 of its potential returns per unit of risk. The Agritech is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,800  in Agritech on December 25, 2024 and sell it today you would earn a total of  3,144  from holding Agritech or generate 82.74% return on investment over 90 days.

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

Lotte Chemical Pakistan  vs.  Agritech

Lotte Chemical Pakistan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lotte Chemical Pakistan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Lotte Chemical is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Agritech

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Agritech are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Agritech reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Chemical and Agritech

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

The idea behind Lotte Chemical Pakistan and Agritech 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.