Correlation Between Lotte Chemical and Al Khair

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

Diversification Opportunities for Lotte Chemical and Al Khair

0.67

Correlation Coefficient

Lotte Chemical  Al Khair

Poor diversification

The 3 months correlation between Lotte and AKGL is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Pakistan and Al Khair Gadoon Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Al Khair Gadoon 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 Al Khair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Al Khair Gadoon has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and Al Khair go up and down completely randomly.

Pair Corralation between Lotte Chemical and Al Khair

Assuming the 90 days trading horizon Lotte Chemical Pakistan is expected to generate 0.71 times more return on investment than Al Khair. However, Lotte Chemical Pakistan is 1.4 times less risky than Al Khair. It trades about -0.04 of its potential returns per unit of risk. Al Khair Gadoon Limited is currently generating about -0.16 per unit of risk. If you would invest  2,252  in Lotte Chemical Pakistan on October 12, 2024 and sell it today you would lose (85.00) from holding Lotte Chemical Pakistan or give up 3.77% of portfolio value over 90 days.

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

Lotte Chemical Pakistan  vs.  Al Khair Gadoon Limited

Lotte Chemical Pakistan

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Chemical Pakistan are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical indicators, Lotte Chemical displayed solid returns over the last few months and may actually be approaching a breakup point.

Al Khair Gadoon

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Al Khair Gadoon Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Al Khair sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Chemical and Al Khair

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

The idea behind Lotte Chemical Pakistan and Al Khair Gadoon Limited 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 Commodity Directory module to find actively traded commodities issued by global exchanges.