Correlation Between Korea Steel and LG Chemicals
Can any of the company-specific risk be diversified away by investing in both Korea Steel and LG Chemicals 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 Korea Steel and LG Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Korea Steel Co and LG Chemicals, you can compare the effects of market volatilities on Korea Steel and LG Chemicals 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 Korea Steel with a short position of LG Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Steel and LG Chemicals.
Diversification Opportunities for Korea Steel and LG Chemicals
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Korea and 051910 is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Korea Steel Co and LG Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chemicals and Korea Steel 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 Korea Steel Co are associated (or correlated) with LG Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Chemicals has no effect on the direction of Korea Steel i.e., Korea Steel and LG Chemicals go up and down completely randomly.
Pair Corralation between Korea Steel and LG Chemicals
Assuming the 90 days trading horizon Korea Steel Co is expected to under-perform the LG Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Korea Steel Co is 1.4 times less risky than LG Chemicals. The stock trades about -0.23 of its potential returns per unit of risk. The LG Chemicals is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest 31,850,000 in LG Chemicals on August 30, 2024 and sell it today you would lose (1,750,000) from holding LG Chemicals or give up 5.49% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Korea Steel Co vs. LG Chemicals
Performance |
| Timeline |
| Korea Steel |
| LG Chemicals |
Korea Steel and LG Chemicals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Korea Steel and LG Chemicals
The main advantage of trading using opposite Korea Steel and LG Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Korea Steel position performs unexpectedly, LG Chemicals 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 LG Chemicals will offset losses from the drop in LG Chemicals' long position.| Korea Steel vs. Kbi Metal Co | Korea Steel vs. Shinsegae Information Communication | Korea Steel vs. Mobileleader CoLtd | Korea Steel vs. Taeyang Metal Industrial |
| LG Chemicals vs. Woori Technology | LG Chemicals vs. Lion Chemtech Co | LG Chemicals vs. Sungchang Autotech Co | LG Chemicals vs. POSCO M TECH Co |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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