Correlation Between Lotte Non-Life and Daewoo Engineering
Can any of the company-specific risk be diversified away by investing in both Lotte Non-Life and Daewoo Engineering 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 Non-Life and Daewoo Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lotte Non Life Insurance and Daewoo Engineering Construction, you can compare the effects of market volatilities on Lotte Non-Life and Daewoo Engineering 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 Non-Life with a short position of Daewoo Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Non-Life and Daewoo Engineering.
Diversification Opportunities for Lotte Non-Life and Daewoo Engineering
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lotte and Daewoo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Non Life Insurance and Daewoo Engineering Constructio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daewoo Engineering and Lotte Non-Life 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 Non Life Insurance are associated (or correlated) with Daewoo Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daewoo Engineering has no effect on the direction of Lotte Non-Life i.e., Lotte Non-Life and Daewoo Engineering go up and down completely randomly.
Pair Corralation between Lotte Non-Life and Daewoo Engineering
Assuming the 90 days trading horizon Lotte Non Life Insurance is expected to generate 1.15 times more return on investment than Daewoo Engineering. However, Lotte Non-Life is 1.15 times more volatile than Daewoo Engineering Construction. It trades about -0.01 of its potential returns per unit of risk. Daewoo Engineering Construction is currently generating about -0.13 per unit of risk. If you would invest 205,000 in Lotte Non Life Insurance on September 19, 2024 and sell it today you would lose (3,000) from holding Lotte Non Life Insurance or give up 1.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lotte Non Life Insurance vs. Daewoo Engineering Constructio
Performance |
| Timeline |
| Lotte Non Life |
| Daewoo Engineering |
Lotte Non-Life and Daewoo Engineering Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lotte Non-Life and Daewoo Engineering
The main advantage of trading using opposite Lotte Non-Life and Daewoo Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Non-Life position performs unexpectedly, Daewoo Engineering 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 Daewoo Engineering will offset losses from the drop in Daewoo Engineering's long position.| Lotte Non-Life vs. Samsung Electronics Co | Lotte Non-Life vs. Samsung Electronics Co | Lotte Non-Life vs. SK Hynix | Lotte Non-Life vs. POSCO Holdings |
| Daewoo Engineering vs. Sangsin Energy Display | Daewoo Engineering vs. Ssangyong Information Communication | Daewoo Engineering vs. Lotte Non Life Insurance | Daewoo Engineering vs. Korean Reinsurance Co |
Check out your portfolio center.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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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