Correlation Between Lotte Chilsung and Dongbang Ship

Can any of the company-specific risk be diversified away by investing in both Lotte Chilsung and Dongbang Ship 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 Dongbang Ship 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 Dongbang Ship Machinery, you can compare the effects of market volatilities on Lotte Chilsung and Dongbang Ship 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 Dongbang Ship. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Chilsung and Dongbang Ship.

Diversification Opportunities for Lotte Chilsung and Dongbang Ship

-0.62

Correlation Coefficient

Lotte Chilsung  Dongbang Ship

Excellent diversification

The 3 months correlation between Lotte and Dongbang is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chilsung Beverage and Dongbang Ship Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbang Ship Machinery 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 Dongbang Ship. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbang Ship Machinery has no effect on the direction of Lotte Chilsung i.e., Lotte Chilsung and Dongbang Ship go up and down completely randomly.

Pair Corralation between Lotte Chilsung and Dongbang Ship

Assuming the 90 days trading horizon Lotte Chilsung Beverage is expected to under-perform the Dongbang Ship. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Chilsung Beverage is 2.11 times less risky than Dongbang Ship. The stock trades about -0.14 of its potential returns per unit of risk. The Dongbang Ship Machinery is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  267,000  in Dongbang Ship Machinery on September 29, 2024 and sell it today you would earn a total of  36,500  from holding Dongbang Ship Machinery or generate 13.67% return on investment over 90 days.

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

Lotte Chilsung Beverage  vs.  Dongbang Ship Machinery

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Dongbang Ship Machinery

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dongbang Ship Machinery are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbang Ship sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Chilsung and Dongbang Ship

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

The idea behind Lotte Chilsung Beverage and Dongbang Ship Machinery 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.