Correlation Between Lotte Chilsung and Cloud Air

Can any of the company-specific risk be diversified away by investing in both Lotte Chilsung and Cloud Air 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 Chilsung and Cloud Air into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lotte Chilsung Beverage and Cloud Air CoLtd, you can compare the effects of market volatilities on Lotte Chilsung and Cloud Air 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 Chilsung with a short position of Cloud Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Chilsung and Cloud Air.

Diversification Opportunities for Lotte Chilsung and Cloud Air

0.71

Correlation Coefficient

Lotte Chilsung  Cloud Air

Poor diversification

The 3 months correlation between Lotte and Cloud is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chilsung Beverage and Cloud Air CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cloud Air CoLtd and Lotte Chilsung 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 Chilsung Beverage are associated (or correlated) with Cloud Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cloud Air CoLtd has no effect on the direction of Lotte Chilsung i.e., Lotte Chilsung and Cloud Air go up and down completely randomly.

Pair Corralation between Lotte Chilsung and Cloud Air

Assuming the 90 days trading horizon Lotte Chilsung Beverage is expected to under-perform the Cloud Air. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Chilsung Beverage is 1.05 times less risky than Cloud Air. The stock trades about -0.1 of its potential returns per unit of risk. The Cloud Air CoLtd is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  90,900  in Cloud Air CoLtd on September 14, 2024 and sell it today you would lose (5,000) from holding Cloud Air CoLtd or give up 5.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Lotte Chilsung Beverage  vs.  Cloud Air CoLtd

Lotte Chilsung Beverage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Chilsung Beverage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Cloud Air CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Lotte Chilsung and Cloud Air

The main advantage of trading using opposite Lotte Chilsung and Cloud Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Chilsung position performs unexpectedly, Cloud Air 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 Cloud Air will offset losses from the drop in Cloud Air's long position.

The idea behind Lotte Chilsung Beverage and Cloud Air CoLtd 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.