Correlation Between Soneri Bank and Lotte Chemical

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

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

Diversification Opportunities for Soneri Bank and Lotte Chemical

0.03

Correlation Coefficient

Soneri Bank  Lotte Chemical

Significant diversification

The 3 months correlation between Soneri and Lotte is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Soneri Bank 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 Soneri Bank 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 Soneri Bank 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 Soneri Bank i.e., Soneri Bank and Lotte Chemical go up and down completely randomly.

Pair Corralation between Soneri Bank and Lotte Chemical

Assuming the 90 days trading horizon Soneri Bank is expected to generate 0.96 times more return on investment than Lotte Chemical. However, Soneri Bank is 1.04 times less risky than Lotte Chemical. It trades about 0.05 of its potential returns per unit of risk. Lotte Chemical Pakistan is currently generating about -0.02 per unit of risk. If you would invest  1,544  in Soneri Bank on December 23, 2024 and sell it today you would earn a total of  73.00  from holding Soneri Bank or generate 4.73% return on investment over 90 days.

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

Soneri Bank  vs.  Lotte Chemical Pakistan

Soneri Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Soneri Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Soneri Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Soneri Bank and Lotte Chemical

The main advantage of trading using opposite Soneri Bank and Lotte Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Soneri Bank 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 Soneri Bank 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.