Correlation Between Semen Indonesia and Lotte Chemical

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

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

Diversification Opportunities for Semen Indonesia and Lotte Chemical

0.72

Correlation Coefficient

Semen Indonesia  Lotte Chemical

Poor diversification

The 3 months correlation between Semen and Lotte is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Semen Indonesia Persero and Lotte Chemical Titan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Chemical Titan and Semen Indonesia 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 Semen Indonesia Persero 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 Titan has no effect on the direction of Semen Indonesia i.e., Semen Indonesia and Lotte Chemical go up and down completely randomly.

Pair Corralation between Semen Indonesia and Lotte Chemical

Assuming the 90 days trading horizon Semen Indonesia Persero is expected to under-perform the Lotte Chemical. In addition to that, Semen Indonesia is 2.3 times more volatile than Lotte Chemical Titan. It trades about -0.08 of its total potential returns per unit of risk. Lotte Chemical Titan is currently generating about -0.05 per unit of volatility. If you would invest  18,800  in Lotte Chemical Titan on December 30, 2024 and sell it today you would lose (1,000.00) from holding Lotte Chemical Titan or give up 5.32% of portfolio value over 90 days.

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

Semen Indonesia Persero  vs.  Lotte Chemical Titan

Semen Indonesia Persero

Risk-Adjusted Performance

Very Weak

Over the last 90 days Semen Indonesia Persero has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Lotte Chemical Titan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lotte Chemical Titan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Lotte Chemical is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Semen Indonesia and Lotte Chemical

The main advantage of trading using opposite Semen Indonesia and Lotte Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Semen Indonesia 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 Semen Indonesia Persero and Lotte Chemical Titan 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.