Correlation Between LG Household and UIL
Can any of the company-specific risk be diversified away by investing in both LG Household and UIL 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 LG Household and UIL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LG Household Healthcare and UIL Co, you can compare the effects of market volatilities on LG Household and UIL 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 LG Household with a short position of UIL. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and UIL.
Diversification Opportunities for LG Household and UIL
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 051900 and UIL is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and UIL Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UIL Co and LG Household 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 LG Household Healthcare are associated (or correlated) with UIL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UIL Co has no effect on the direction of LG Household i.e., LG Household and UIL go up and down completely randomly.
Pair Corralation between LG Household and UIL
Assuming the 90 days trading horizon LG Household is expected to generate 14.35 times less return on investment than UIL. But when comparing it to its historical volatility, LG Household Healthcare is 1.51 times less risky than UIL. It trades about 0.01 of its potential returns per unit of risk. UIL Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 473,000 in UIL Co on September 13, 2024 and sell it today you would earn a total of 44,000 from holding UIL Co or generate 9.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Household Healthcare vs. UIL Co
Performance |
| Timeline |
| LG Household Healthcare |
| UIL Co |
LG Household and UIL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Household and UIL
The main advantage of trading using opposite LG Household and UIL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, UIL 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 UIL will offset losses from the drop in UIL's long position.| LG Household vs. Adaptive Plasma Technology | LG Household vs. Sung Bo Chemicals | LG Household vs. Puloon Technology | LG Household vs. Woori Technology |
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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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