Correlation Between DB Financial and LG Chem
Can any of the company-specific risk be diversified away by investing in both DB Financial and LG Chem 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 DB Financial and LG Chem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DB Financial Investment and LG Chem, you can compare the effects of market volatilities on DB Financial and LG Chem 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 DB Financial with a short position of LG Chem. Check out your portfolio center. Please also check ongoing floating volatility patterns of DB Financial and LG Chem.
Diversification Opportunities for DB Financial and LG Chem
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between 016610 and 051915 is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding DB Financial Investment and LG Chem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chem and DB Financial 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 DB Financial Investment are associated (or correlated) with LG Chem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Chem has no effect on the direction of DB Financial i.e., DB Financial and LG Chem go up and down completely randomly.
Pair Corralation between DB Financial and LG Chem
Assuming the 90 days trading horizon DB Financial Investment is expected to generate 0.45 times more return on investment than LG Chem. However, DB Financial Investment is 2.22 times less risky than LG Chem. It trades about -0.15 of its potential returns per unit of risk. LG Chem is currently generating about -0.08 per unit of risk. If you would invest 535,000 in DB Financial Investment on August 25, 2024 and sell it today you would lose (25,000) from holding DB Financial Investment or give up 4.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
DB Financial Investment vs. LG Chem
Performance |
| Timeline |
| DB Financial Investment |
| LG Chem |
DB Financial and LG Chem Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DB Financial and LG Chem
The main advantage of trading using opposite DB Financial and LG Chem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DB Financial position performs unexpectedly, LG Chem 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 Chem will offset losses from the drop in LG Chem's long position.| DB Financial vs. Korea New Network | DB Financial vs. Dong A Eltek | DB Financial vs. Dreamus Company | DB Financial vs. SK Bioscience Co |
| LG Chem vs. Woori Technology Investment | LG Chem vs. Polaris Office Corp | LG Chem vs. Homecast CoLtd | LG Chem vs. DB Financial 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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