Correlation Between Crescent Steel and Lotte Chemical

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

Diversification Opportunities for Crescent Steel and Lotte Chemical

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between Crescent and Lotte is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Crescent Steel Allied and Lotte Chemical Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Chemical Pakistan and Crescent 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 Crescent Steel Allied are associated (or correlated) with Lotte Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Chemical Pakistan has no effect on the direction of Crescent Steel i.e., Crescent Steel and Lotte Chemical go up and down completely randomly.

Pair Corralation between Crescent Steel and Lotte Chemical

Assuming the 90 days trading horizon Crescent Steel Allied is expected to generate 2.1 times more return on investment than Lotte Chemical. However, Crescent Steel is 2.1 times more volatile than Lotte Chemical Pakistan. It trades about 0.1 of its potential returns per unit of risk. Lotte Chemical Pakistan is currently generating about -0.05 per unit of risk. If you would invest  4,389  in Crescent Steel Allied on September 4, 2024 and sell it today you would earn a total of  5,639  from holding Crescent Steel Allied or generate 128.48% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Crescent Steel Allied  vs.  Lotte Chemical Pakistan

 Performance 
       Timeline  
Crescent Steel Allied 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Crescent Steel Allied are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Crescent Steel sustained solid returns over the last few months and may actually be approaching a breakup point.
Lotte Chemical Pakistan 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Chemical Pakistan are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical indicators, Lotte Chemical displayed solid returns over the last few months and may actually be approaching a breakup point.

Crescent Steel and Lotte Chemical Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Crescent Steel and Lotte Chemical

The main advantage of trading using opposite Crescent Steel and Lotte Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crescent Steel position performs unexpectedly, Lotte Chemical 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 Chemical will offset losses from the drop in Lotte Chemical's long position.
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The idea behind Crescent Steel Allied and Lotte Chemical Pakistan 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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