Correlation Between LG Household and NOVATECH
Can any of the company-specific risk be diversified away by investing in both LG Household and NOVATECH 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 NOVATECH 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 NOVATECH Co, you can compare the effects of market volatilities on LG Household and NOVATECH 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 NOVATECH. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and NOVATECH.
Diversification Opportunities for LG Household and NOVATECH
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between 051900 and NOVATECH is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and NOVATECH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVATECH 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 NOVATECH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOVATECH has no effect on the direction of LG Household i.e., LG Household and NOVATECH go up and down completely randomly.
Pair Corralation between LG Household and NOVATECH
Assuming the 90 days trading horizon LG Household Healthcare is expected to under-perform the NOVATECH. But the stock apears to be less risky and, when comparing its historical volatility, LG Household Healthcare is 1.21 times less risky than NOVATECH. The stock trades about -0.01 of its potential returns per unit of risk. The NOVATECH Co is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest 1,695,000 in NOVATECH Co on November 9, 2024 and sell it today you would earn a total of 320,000 from holding NOVATECH Co or generate 18.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Household Healthcare vs. NOVATECH Co
Performance |
| Timeline |
| LG Household Healthcare |
| NOVATECH |
LG Household and NOVATECH Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Household and NOVATECH
The main advantage of trading using opposite LG Household and NOVATECH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, NOVATECH 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 NOVATECH will offset losses from the drop in NOVATECH's long position.| LG Household vs. Hankook Furniture Co | LG Household vs. Daou Data Corp | LG Household vs. Insung Information Co | LG Household vs. Hanil Chemical Ind |
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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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