Correlation Between Lotte Data and Kakao Games

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

Diversification Opportunities for Lotte Data and Kakao Games

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Lotte and Kakao is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Data Communication and Kakao Games Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kakao Games Corp and Lotte Data 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 Data Communication are associated (or correlated) with Kakao Games. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kakao Games Corp has no effect on the direction of Lotte Data i.e., Lotte Data and Kakao Games go up and down completely randomly.

Pair Corralation between Lotte Data and Kakao Games

Assuming the 90 days trading horizon Lotte Data Communication is expected to under-perform the Kakao Games. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Data Communication is 1.01 times less risky than Kakao Games. The stock trades about -0.17 of its potential returns per unit of risk. The Kakao Games Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,692,000  in Kakao Games Corp on August 29, 2024 and sell it today you would earn a total of  26,000  from holding Kakao Games Corp or generate 1.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Lotte Data Communication  vs.  Kakao Games Corp

 Performance 
       Timeline  
Lotte Data Communication 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lotte Data Communication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Kakao Games Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Kakao Games Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Kakao Games is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lotte Data and Kakao Games Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lotte Data and Kakao Games

The main advantage of trading using opposite Lotte Data and Kakao Games positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Data position performs unexpectedly, Kakao Games 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 Kakao Games will offset losses from the drop in Kakao Games' long position.
The idea behind Lotte Data Communication and Kakao Games Corp 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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