Correlation Between Lotte Chemical and Aisha Steel

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

Diversification Opportunities for Lotte Chemical and Aisha Steel

0.49

Correlation Coefficient

Lotte Chemical  Aisha Steel

Very weak diversification

The 3 months correlation between Lotte and Aisha is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Pakistan and Aisha Steel Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aisha Steel Mills 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 Aisha Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aisha Steel Mills has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and Aisha Steel go up and down completely randomly.

Pair Corralation between Lotte Chemical and Aisha Steel

Assuming the 90 days trading horizon Lotte Chemical Pakistan is expected to generate 0.71 times more return on investment than Aisha Steel. However, Lotte Chemical Pakistan is 1.41 times less risky than Aisha Steel. It trades about -0.02 of its potential returns per unit of risk. Aisha Steel Mills is currently generating about -0.03 per unit of risk. If you would invest  2,056  in Lotte Chemical Pakistan on December 23, 2024 and sell it today you would lose (78.00) from holding Lotte Chemical Pakistan or give up 3.79% of portfolio value over 90 days.

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

Lotte Chemical Pakistan  vs.  Aisha Steel Mills

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.

Aisha Steel Mills

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aisha Steel Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Aisha Steel is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Lotte Chemical and Aisha Steel

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

The idea behind Lotte Chemical Pakistan and Aisha Steel Mills 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.