Correlation Between LG Household and Dongbu Steel
Can any of the company-specific risk be diversified away by investing in both LG Household and Dongbu Steel 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 Dongbu Steel 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 Dongbu Steel Co, you can compare the effects of market volatilities on LG Household and Dongbu Steel 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 Dongbu Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and Dongbu Steel.
Diversification Opportunities for LG Household and Dongbu Steel
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between 051905 and Dongbu is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and Dongbu Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongbu Steel 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 Dongbu Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongbu Steel has no effect on the direction of LG Household i.e., LG Household and Dongbu Steel go up and down completely randomly.
Pair Corralation between LG Household and Dongbu Steel
Assuming the 90 days trading horizon LG Household Healthcare is expected to under-perform the Dongbu Steel. But the stock apears to be less risky and, when comparing its historical volatility, LG Household Healthcare is 1.35 times less risky than Dongbu Steel. The stock trades about -0.06 of its potential returns per unit of risk. The Dongbu Steel Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 813,128 in Dongbu Steel Co on August 29, 2024 and sell it today you would lose (154,128) from holding Dongbu Steel Co or give up 18.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Household Healthcare vs. Dongbu Steel Co
Performance |
| Timeline |
| LG Household Healthcare |
| Dongbu Steel |
LG Household and Dongbu Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Household and Dongbu Steel
The main advantage of trading using opposite LG Household and Dongbu Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, Dongbu Steel 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 Dongbu Steel will offset losses from the drop in Dongbu Steel's long position.| LG Household vs. Seoyon Topmetal Co | LG Household vs. Kukil Metal Co | LG Household vs. Sangsin Energy Display | LG Household vs. Digital Power Communications |
| Dongbu Steel vs. LG Chemicals | Dongbu Steel vs. Lotte Chemical Corp | Dongbu Steel vs. Hyundai Steel | Dongbu Steel vs. Seah Steel Corp |
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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