Correlation Between Korea Steel and Lotte Data

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Can any of the company-specific risk be diversified away by investing in both Korea Steel and Lotte Data 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 Korea Steel and Lotte Data into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Korea Steel Co and Lotte Data Communication, you can compare the effects of market volatilities on Korea Steel and Lotte Data 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 Korea Steel with a short position of Lotte Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Steel and Lotte Data.

Diversification Opportunities for Korea Steel and Lotte Data

KoreaLotteDiversified AwayKoreaLotteDiversified Away100%
0.41
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Korea and Lotte is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Korea Steel Co and Lotte Data Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Data Communication and Korea Steel 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 Korea Steel Co are associated (or correlated) with Lotte Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Data Communication has no effect on the direction of Korea Steel i.e., Korea Steel and Lotte Data go up and down completely randomly.

Pair Corralation between Korea Steel and Lotte Data

Assuming the 90 days trading horizon Korea Steel Co is expected to under-perform the Lotte Data. But the stock apears to be less risky and, when comparing its historical volatility, Korea Steel Co is 1.27 times less risky than Lotte Data. The stock trades about -0.04 of its potential returns per unit of risk. The Lotte Data Communication is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,975,000  in Lotte Data Communication on November 23, 2024 and sell it today you would earn a total of  100,000  from holding Lotte Data Communication or generate 5.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Korea Steel Co  vs.  Lotte Data Communication

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -15-10-50510
JavaScript chart by amCharts 3.21.15007280 286940
       Timeline  
Korea Steel 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Korea Steel Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Steel sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1,3001,4001,5001,6001,700
Lotte Data Communication 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Data Communication are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lotte Data is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb17,50018,00018,50019,00019,50020,00020,50021,00021,500

Korea Steel and Lotte Data Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-6.87-5.14-3.42-1.70.01.733.525.317.098.88 0.020.030.040.050.060.070.08
JavaScript chart by amCharts 3.21.15007280 286940
       Returns  

Pair Trading with Korea Steel and Lotte Data

The main advantage of trading using opposite Korea Steel and Lotte Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korea Steel position performs unexpectedly, Lotte Data 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 Data will offset losses from the drop in Lotte Data's long position.
The idea behind Korea Steel Co and Lotte Data Communication 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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