Correlation Between Lotte Rental and System

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

Diversification Opportunities for Lotte Rental and System

-0.06
  Correlation Coefficient

Good diversification

The 3 months correlation between Lotte and System is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Rental Co and System and Application in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on System and Application and Lotte Rental 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 Rental Co are associated (or correlated) with System. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of System and Application has no effect on the direction of Lotte Rental i.e., Lotte Rental and System go up and down completely randomly.

Pair Corralation between Lotte Rental and System

Assuming the 90 days trading horizon Lotte Rental Co is expected to under-perform the System. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Rental Co is 1.85 times less risky than System. The stock trades about -0.14 of its potential returns per unit of risk. The System and Application is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  155,000  in System and Application on November 3, 2024 and sell it today you would lose (3,700) from holding System and Application or give up 2.39% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Lotte Rental Co  vs.  System and Application

 Performance 
       Timeline  
Lotte Rental 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Rental Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lotte Rental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
System and Application 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in System and Application are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, System sustained solid returns over the last few months and may actually be approaching a breakup point.

Lotte Rental and System Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lotte Rental and System

The main advantage of trading using opposite Lotte Rental and System positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Rental position performs unexpectedly, System 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 System will offset losses from the drop in System's long position.
The idea behind Lotte Rental Co and System and Application 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.
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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