Correlation Between GM and Lotte Energy
Can any of the company-specific risk be diversified away by investing in both GM and Lotte Energy 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 GM and Lotte Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Lotte Energy Materials, you can compare the effects of market volatilities on GM and Lotte Energy 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 GM with a short position of Lotte Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Lotte Energy.
Diversification Opportunities for GM and Lotte Energy
-0.89 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and Lotte is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lotte Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Energy Materials and GM 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 General Motors are associated (or correlated) with Lotte Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Energy Materials has no effect on the direction of GM i.e., GM and Lotte Energy go up and down completely randomly.
Pair Corralation between GM and Lotte Energy
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.64 times more return on investment than Lotte Energy. However, General Motors is 1.56 times less risky than Lotte Energy. It trades about 0.08 of its potential returns per unit of risk. Lotte Energy Materials is currently generating about -0.14 per unit of risk. If you would invest 4,551 in General Motors on September 1, 2024 and sell it today you would earn a total of 1,008 from holding General Motors or generate 22.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 96.83% |
| Values | Daily Returns |
General Motors vs. Lotte Energy Materials
Performance |
| Timeline |
| General Motors |
| Lotte Energy Materials |
GM and Lotte Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Lotte Energy
The main advantage of trading using opposite GM and Lotte Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Lotte Energy 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 Energy will offset losses from the drop in Lotte Energy's long position.The idea behind General Motors and Lotte Energy Materials 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.| Lotte Energy vs. Dongsin Engineering Construction | Lotte Energy vs. Doosan Fuel Cell | Lotte Energy vs. Daishin Balance 1 | Lotte Energy vs. Total Soft Bank |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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