Correlation Between LG Household and Kakao Games

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Can any of the company-specific risk be diversified away by investing in both LG Household and Kakao Games 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 Kakao Games 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 Kakao Games Corp, you can compare the effects of market volatilities on LG Household and Kakao Games 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 Kakao Games. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and Kakao Games.

Diversification Opportunities for LG Household and Kakao Games

051900KakaoDiversified Away051900KakaoDiversified Away100%
0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between 051900 and Kakao is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and Kakao Games Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kakao Games Corp 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 Kakao Games. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kakao Games Corp has no effect on the direction of LG Household i.e., LG Household and Kakao Games go up and down completely randomly.

Pair Corralation between LG Household and Kakao Games

Assuming the 90 days trading horizon LG Household Healthcare is expected to generate 1.18 times more return on investment than Kakao Games. However, LG Household is 1.18 times more volatile than Kakao Games Corp. It trades about 0.16 of its potential returns per unit of risk. Kakao Games Corp is currently generating about -0.14 per unit of risk. If you would invest  29,600,000  in LG Household Healthcare on November 21, 2024 and sell it today you would earn a total of  1,600,000  from holding LG Household Healthcare or generate 5.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

LG Household Healthcare  vs.  Kakao Games Corp

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -15-10-505101520
JavaScript chart by amCharts 3.21.15051900 293490
       Timeline  
LG Household Healthcare 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days LG Household Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LG Household is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb300,000310,000320,000330,000340,000
Kakao Games Corp 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Kakao Games Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Kakao Games is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb15,00016,00017,00018,00019,00020,00021,00022,000

LG Household and Kakao Games Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.37-2.53-1.68-0.830.00.781.572.363.15 0.040.050.060.070.080.09
JavaScript chart by amCharts 3.21.15051900 293490
       Returns  

Pair Trading with LG Household and Kakao Games

The main advantage of trading using opposite LG Household and Kakao Games positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, Kakao Games 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 Kakao Games will offset losses from the drop in Kakao Games' long position.
The idea behind LG Household Healthcare and Kakao Games Corp 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Kakao Games as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Kakao Games' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Kakao Games' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Kakao Games Corp.
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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..

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