Correlation Between LG Household and LB Investment
Can any of the company-specific risk be diversified away by investing in both LG Household and LB Investment 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 LB Investment 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 LB Investment, you can compare the effects of market volatilities on LG Household and LB Investment 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 LB Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and LB Investment.
Diversification Opportunities for LG Household and LB Investment
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between 051900 and 309960 is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and LB Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Investment 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 LB Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Investment has no effect on the direction of LG Household i.e., LG Household and LB Investment go up and down completely randomly.
Pair Corralation between LG Household and LB Investment
Assuming the 90 days trading horizon LG Household Healthcare is expected to under-perform the LB Investment. In addition to that, LG Household is 2.94 times more volatile than LB Investment. It trades about -0.11 of its total potential returns per unit of risk. LB Investment is currently generating about -0.13 per unit of volatility. If you would invest 387,000 in LB Investment on August 29, 2024 and sell it today you would lose (11,000) from holding LB Investment or give up 2.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Household Healthcare vs. LB Investment
Performance |
| Timeline |
| LG Household Healthcare |
| LB Investment |
LG Household and LB Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Household and LB Investment
The main advantage of trading using opposite LG Household and LB Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, LB Investment 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 LB Investment will offset losses from the drop in LB Investment's long position.| LG Household vs. Samsung Electronics Co | LG Household vs. Samsung Electronics Co | LG Household vs. Hyundai Motor Co | LG Household vs. Hyundai Motor |
| LB Investment vs. Samsung Electronics Co | LB Investment vs. Samsung Electronics Co | LB Investment vs. LG Energy Solution | LB Investment vs. SK Hynix |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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