Correlation Between Lotte Chemical and Dongjin Semichem
Can any of the company-specific risk be diversified away by investing in both Lotte Chemical and Dongjin Semichem 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 Chemical and Dongjin Semichem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lotte Chemical Corp and Dongjin Semichem Co, you can compare the effects of market volatilities on Lotte Chemical and Dongjin Semichem 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 Chemical with a short position of Dongjin Semichem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Chemical and Dongjin Semichem.
Diversification Opportunities for Lotte Chemical and Dongjin Semichem
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lotte and Dongjin is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Corp and Dongjin Semichem Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongjin Semichem and Lotte Chemical 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 Chemical Corp are associated (or correlated) with Dongjin Semichem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongjin Semichem has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and Dongjin Semichem go up and down completely randomly.
Pair Corralation between Lotte Chemical and Dongjin Semichem
Assuming the 90 days trading horizon Lotte Chemical Corp is expected to under-perform the Dongjin Semichem. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Chemical Corp is 1.72 times less risky than Dongjin Semichem. The stock trades about -0.26 of its potential returns per unit of risk. The Dongjin Semichem Co is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,155,000 in Dongjin Semichem Co on October 23, 2024 and sell it today you would earn a total of 150,000 from holding Dongjin Semichem Co or generate 6.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lotte Chemical Corp vs. Dongjin Semichem Co
Performance |
| Timeline |
| Lotte Chemical Corp |
| Dongjin Semichem |
Lotte Chemical and Dongjin Semichem Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lotte Chemical and Dongjin Semichem
The main advantage of trading using opposite Lotte Chemical and Dongjin Semichem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Chemical position performs unexpectedly, Dongjin Semichem 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 Dongjin Semichem will offset losses from the drop in Dongjin Semichem's long position.| Lotte Chemical vs. Shinsegae Food | Lotte Chemical vs. Grand Korea Leisure | Lotte Chemical vs. LG Display Co | Lotte Chemical vs. Foodnamoo |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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