Correlation Between OCI and LG Chemicals
Can any of the company-specific risk be diversified away by investing in both OCI 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 OCI and LG Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between OCI Co and LG Chemicals, you can compare the effects of market volatilities on OCI 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 OCI with a short position of LG Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of OCI and LG Chemicals.
Diversification Opportunities for OCI and LG Chemicals
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between OCI and 051910 is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding OCI Co and LG Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chemicals and OCI 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 OCI 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 OCI i.e., OCI and LG Chemicals go up and down completely randomly.
Pair Corralation between OCI and LG Chemicals
Assuming the 90 days trading horizon OCI Co is expected to under-perform the LG Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, OCI Co is 1.31 times less risky than LG Chemicals. The stock trades about -0.18 of its potential returns per unit of risk. The LG Chemicals is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 37,450,000 in LG Chemicals on September 3, 2024 and sell it today you would lose (9,200,000) from holding LG Chemicals or give up 24.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
OCI Co vs. LG Chemicals
Performance |
| Timeline |
| OCI Co |
| LG Chemicals |
OCI and LG Chemicals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with OCI and LG Chemicals
The main advantage of trading using opposite OCI and LG Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OCI 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.The idea behind OCI Co and LG Chemicals 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.| LG Chemicals vs. Eagle Veterinary Technology | LG Chemicals vs. Daehan Synthetic Fiber | LG Chemicals vs. Chin Yang Chemical | LG Chemicals vs. Global Standard Technology |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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