Correlation Between Lotte Chemical and Meezan Bank

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

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

Diversification Opportunities for Lotte Chemical and Meezan Bank

-0.15

Correlation Coefficient

Lotte Chemical  Meezan Bank

Good diversification

The 3 months correlation between Lotte and Meezan is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chemical Pakistan and Meezan Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meezan Bank and Lotte Chemical 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 Chemical Pakistan are associated (or correlated) with Meezan Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meezan Bank has no effect on the direction of Lotte Chemical i.e., Lotte Chemical and Meezan Bank go up and down completely randomly.

Pair Corralation between Lotte Chemical and Meezan Bank

Assuming the 90 days trading horizon Lotte Chemical Pakistan is expected to under-perform the Meezan Bank. But the stock apears to be less risky and, when comparing its historical volatility, Lotte Chemical Pakistan is 1.27 times less risky than Meezan Bank. The stock trades about -0.26 of its potential returns per unit of risk. The Meezan Bank is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  21,710  in Meezan Bank on February 5, 2024 and sell it today you would lose (267.00) from holding Meezan Bank or give up 1.23% of portfolio value over 90 days.

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

Lotte Chemical Pakistan  vs.  Meezan Bank

Lotte Chemical Pakistan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Chemical Pakistan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Meezan Bank

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Meezan Bank are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Meezan Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lotte Chemical and Meezan Bank

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

The idea behind Lotte Chemical Pakistan and Meezan Bank 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.