Correlation Between Lotte Chemical and Wah Nobel

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

Diversification Opportunities for Lotte Chemical and Wah Nobel

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Lotte and Wah is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Pakistan and Wah Nobel Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wah Nobel Chemicals 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 Pakistan are associated (or correlated) with Wah Nobel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wah Nobel Chemicals has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and Wah Nobel go up and down completely randomly.

Pair Corralation between Lotte Chemical and Wah Nobel

Assuming the 90 days trading horizon Lotte Chemical is expected to generate 7.23 times less return on investment than Wah Nobel. But when comparing it to its historical volatility, Lotte Chemical Pakistan is 1.31 times less risky than Wah Nobel. It trades about 0.01 of its potential returns per unit of risk. Wah Nobel Chemicals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  13,918  in Wah Nobel Chemicals on August 27, 2024 and sell it today you would earn a total of  8,106  from holding Wah Nobel Chemicals or generate 58.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy81.63%
ValuesDaily Returns

Lotte Chemical Pakistan  vs.  Wah Nobel Chemicals

 Performance 
       Timeline  
Lotte Chemical Pakistan 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Chemical Pakistan are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical indicators, Lotte Chemical may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Wah Nobel Chemicals 

Risk-Adjusted Performance

0 of 100

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

Lotte Chemical and Wah Nobel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lotte Chemical and Wah Nobel

The main advantage of trading using opposite Lotte Chemical and Wah Nobel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Chemical position performs unexpectedly, Wah Nobel 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 Wah Nobel will offset losses from the drop in Wah Nobel's long position.
The idea behind Lotte Chemical Pakistan and Wah Nobel Chemicals 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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