Correlation Between Dongbu Steel and LG Display

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Can any of the company-specific risk be diversified away by investing in both Dongbu Steel and LG Display 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 Dongbu Steel and LG Display into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dongbu Steel Co and LG Display Co, you can compare the effects of market volatilities on Dongbu Steel and LG Display 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 Dongbu Steel with a short position of LG Display. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongbu Steel and LG Display.

Diversification Opportunities for Dongbu Steel and LG Display

-0.19
  Correlation Coefficient

Good diversification

The 3 months correlation between Dongbu and 034220 is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Dongbu Steel Co and LG Display Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Display and Dongbu 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 Dongbu Steel Co are associated (or correlated) with LG Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Display has no effect on the direction of Dongbu Steel i.e., Dongbu Steel and LG Display go up and down completely randomly.

Pair Corralation between Dongbu Steel and LG Display

Assuming the 90 days trading horizon Dongbu Steel Co is expected to generate 1.52 times more return on investment than LG Display. However, Dongbu Steel is 1.52 times more volatile than LG Display Co. It trades about -0.02 of its potential returns per unit of risk. LG Display Co is currently generating about -0.33 per unit of risk. If you would invest  672,000  in Dongbu Steel Co on August 31, 2024 and sell it today you would lose (10,000) from holding Dongbu Steel Co or give up 1.49% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Dongbu Steel Co  vs.  LG Display Co

 Performance 
       Timeline  
Dongbu Steel 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Dongbu Steel Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongbu Steel sustained solid returns over the last few months and may actually be approaching a breakup point.
LG Display 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days LG Display Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Dongbu Steel and LG Display Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dongbu Steel and LG Display

The main advantage of trading using opposite Dongbu Steel and LG Display positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dongbu Steel position performs unexpectedly, LG Display 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 Display will offset losses from the drop in LG Display's long position.
The idea behind Dongbu Steel Co and LG Display Co 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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