Correlation Between Lotte Chemical and United Bank

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

Diversification Opportunities for Lotte Chemical and United Bank

0.85

Correlation Coefficient

Lotte Chemical  United Bank

Very poor diversification

The 3 months correlation between Lotte and United is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Pakistan and United Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Bank 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 United Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Bank has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and United Bank go up and down completely randomly.

Pair Corralation between Lotte Chemical and United Bank

Assuming the 90 days trading horizon Lotte Chemical is expected to generate 11.1 times less return on investment than United Bank. In addition to that, Lotte Chemical is 1.2 times more volatile than United Bank. It trades about 0.02 of its total potential returns per unit of risk. United Bank is currently generating about 0.23 per unit of volatility. If you would invest  5,835  in United Bank on October 9, 2024 and sell it today you would earn a total of  32,707  from holding United Bank or generate 560.53% return on investment over 90 days.

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

Lotte Chemical Pakistan  vs.  United Bank

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.

United Bank

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with Lotte Chemical and United Bank

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

The idea behind Lotte Chemical Pakistan and United Bank 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.