Correlation Between LG Household and Daewon Chemical
Can any of the company-specific risk be diversified away by investing in both LG Household and Daewon Chemical 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 Daewon Chemical 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 Daewon Chemical Co, you can compare the effects of market volatilities on LG Household and Daewon Chemical 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 Daewon Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and Daewon Chemical.
Diversification Opportunities for LG Household and Daewon Chemical
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between 051905 and Daewon is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and Daewon Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daewon Chemical 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 Daewon Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daewon Chemical has no effect on the direction of LG Household i.e., LG Household and Daewon Chemical go up and down completely randomly.
Pair Corralation between LG Household and Daewon Chemical
Assuming the 90 days trading horizon LG Household Healthcare is expected to under-perform the Daewon Chemical. But the stock apears to be less risky and, when comparing its historical volatility, LG Household Healthcare is 4.14 times less risky than Daewon Chemical. The stock trades about -0.19 of its potential returns per unit of risk. The Daewon Chemical Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 106,500 in Daewon Chemical Co on November 2, 2024 and sell it today you would lose (6,200) from holding Daewon Chemical Co or give up 5.82% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
LG Household Healthcare vs. Daewon Chemical Co
Performance |
Timeline |
LG Household Healthcare |
Daewon Chemical |
LG Household and Daewon Chemical Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with LG Household and Daewon Chemical
The main advantage of trading using opposite LG Household and Daewon Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, Daewon Chemical 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 Daewon Chemical will offset losses from the drop in Daewon Chemical's long position.LG Household vs. Jeju Bank | LG Household vs. Seoam Machinery Industry | LG Household vs. ENERGYMACHINERY KOREA CoLtd | LG Household vs. DB Financial Investment |
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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