Correlation Between Indocement Tunggal and Lotte Chemical

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

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

Diversification Opportunities for Indocement Tunggal and Lotte Chemical

0.41

Correlation Coefficient

Indocement Tunggal  Lotte Chemical

Very weak diversification

The 3 months correlation between Indocement and Lotte is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Indocement Tunggal Prakarsa 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 Indocement Tunggal 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 Indocement Tunggal Prakarsa 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 Indocement Tunggal i.e., Indocement Tunggal and Lotte Chemical go up and down completely randomly.

Pair Corralation between Indocement Tunggal and Lotte Chemical

Assuming the 90 days trading horizon Indocement Tunggal is expected to generate 20.76 times less return on investment than Lotte Chemical. But when comparing it to its historical volatility, Indocement Tunggal Prakarsa is 1.59 times less risky than Lotte Chemical. It trades about 0.01 of its potential returns per unit of risk. Lotte Chemical Titan is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  17,600  in Lotte Chemical Titan on August 30, 2024 and sell it today you would earn a total of  1,800  from holding Lotte Chemical Titan or generate 10.23% return on investment over 90 days.

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

Indocement Tunggal Prakarsa  vs.  Lotte Chemical Titan

Indocement Tunggal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indocement Tunggal Prakarsa has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Indocement Tunggal is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Lotte Chemical Titan

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lotte Chemical Titan are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Lotte Chemical may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Indocement Tunggal and Lotte Chemical

The main advantage of trading using opposite Indocement Tunggal and Lotte Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indocement Tunggal 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 Indocement Tunggal Prakarsa 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.