Correlation Between Lotte Energy and TOPMATERIAL

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

By analyzing existing cross correlation between Lotte Energy Materials and TOPMATERIAL LTD, you can compare the effects of market volatilities on Lotte Energy and TOPMATERIAL 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 Energy with a short position of TOPMATERIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotte Energy and TOPMATERIAL.

Diversification Opportunities for Lotte Energy and TOPMATERIAL

0.96

Correlation Coefficient

Lotte Energy  TOPMATERIAL

Almost no diversification

The 3 months correlation between Lotte and TOPMATERIAL is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Energy Materials and TOPMATERIAL LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOPMATERIAL LTD and Lotte Energy 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 Energy Materials are associated (or correlated) with TOPMATERIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOPMATERIAL LTD has no effect on the direction of Lotte Energy i.e., Lotte Energy and TOPMATERIAL go up and down completely randomly.

Pair Corralation between Lotte Energy and TOPMATERIAL

Assuming the 90 days trading horizon Lotte Energy Materials is expected to under-perform the TOPMATERIAL. In addition to that, Lotte Energy is 1.08 times more volatile than TOPMATERIAL LTD. It trades about -0.18 of its total potential returns per unit of risk. TOPMATERIAL LTD is currently generating about -0.14 per unit of volatility. If you would invest  3,845,000  in TOPMATERIAL LTD on September 21, 2024 and sell it today you would lose (1,070,000) from holding TOPMATERIAL LTD or give up 27.83% of portfolio value over 90 days.

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

Lotte Energy Materials  vs.  TOPMATERIAL LTD

Lotte Energy Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Energy Materials 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.

TOPMATERIAL LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOPMATERIAL LTD 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.

Pair Trading with Lotte Energy and TOPMATERIAL

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

The idea behind Lotte Energy Materials and TOPMATERIAL LTD 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.