Correlation Between PMB Technology and Lotte Chemical

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

By analyzing existing cross correlation between PMB Technology Bhd and Lotte Chemical Titan, you can compare the effects of market volatilities on PMB Technology and Lotte Chemical 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 PMB Technology with a short position of Lotte Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of PMB Technology and Lotte Chemical.

Diversification Opportunities for PMB Technology and Lotte Chemical

0.42

Correlation Coefficient

PMB Technology  Lotte Chemical

Very weak diversification

The 3 months correlation between PMB and Lotte is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding PMB Technology Bhd and Lotte Chemical Titan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Chemical Titan and PMB Technology 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 PMB Technology Bhd are associated (or correlated) with Lotte Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Chemical Titan has no effect on the direction of PMB Technology i.e., PMB Technology and Lotte Chemical go up and down completely randomly.

Pair Corralation between PMB Technology and Lotte Chemical

Assuming the 90 days trading horizon PMB Technology Bhd is expected to generate 1.52 times more return on investment than Lotte Chemical. However, PMB Technology is 1.52 times more volatile than Lotte Chemical Titan. It trades about -0.12 of its potential returns per unit of risk. Lotte Chemical Titan is currently generating about -0.29 per unit of risk. If you would invest  234.00  in PMB Technology Bhd on September 14, 2024 and sell it today you would lose (56.00) from holding PMB Technology Bhd or give up 23.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

PMB Technology Bhd  vs.  Lotte Chemical Titan

PMB Technology Bhd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PMB Technology Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Lotte Chemical Titan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Chemical Titan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with PMB Technology and Lotte Chemical

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

The idea behind PMB Technology Bhd and Lotte Chemical Titan 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.