Correlation Between Pakistan State and Lotte Chemical

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

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

Diversification Opportunities for Pakistan State and Lotte Chemical

0.82

Correlation Coefficient

Pakistan State  Lotte Chemical

Very poor diversification

The 3 months correlation between Pakistan and Lotte is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Pakistan State Oil and Lotte Chemical Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Chemical Pakistan and Pakistan State 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 Pakistan State Oil are associated (or correlated) with Lotte Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Chemical Pakistan has no effect on the direction of Pakistan State i.e., Pakistan State and Lotte Chemical go up and down completely randomly.

Pair Corralation between Pakistan State and Lotte Chemical

Assuming the 90 days trading horizon Pakistan State Oil is expected to generate 1.04 times more return on investment than Lotte Chemical. However, Pakistan State is 1.04 times more volatile than Lotte Chemical Pakistan. It trades about 0.34 of its potential returns per unit of risk. Lotte Chemical Pakistan is currently generating about 0.14 per unit of risk. If you would invest  19,532  in Pakistan State Oil on October 23, 2024 and sell it today you would earn a total of  19,797  from holding Pakistan State Oil or generate 101.36% return on investment over 90 days.

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

Pakistan State Oil  vs.  Lotte Chemical Pakistan

Pakistan State Oil

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan State Oil are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan State reported solid returns over the last few months and may actually be approaching a breakup point.

Lotte Chemical Pakistan

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Chemical Pakistan are ranked lower than 11 (%) 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.

Pair Trading with Pakistan State and Lotte Chemical

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

The idea behind Pakistan State Oil and Lotte Chemical Pakistan 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..