Correlation Between LG Household and LG Chemicals
Can any of the company-specific risk be diversified away by investing in both LG Household and LG Chemicals 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 LG Chemicals 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 LG Chemicals, you can compare the effects of market volatilities on LG Household and LG Chemicals 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 LG Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and LG Chemicals.
Diversification Opportunities for LG Household and LG Chemicals
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 051905 and 051910 is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and LG Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chemicals 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 LG Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Chemicals has no effect on the direction of LG Household i.e., LG Household and LG Chemicals go up and down completely randomly.
Pair Corralation between LG Household and LG Chemicals
Assuming the 90 days trading horizon LG Household Healthcare is expected to under-perform the LG Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, LG Household Healthcare is 1.28 times less risky than LG Chemicals. The stock trades about -0.14 of its potential returns per unit of risk. The LG Chemicals is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 31,850,000 in LG Chemicals on August 30, 2024 and sell it today you would lose (1,350,000) from holding LG Chemicals or give up 4.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Household Healthcare vs. LG Chemicals
Performance |
| Timeline |
| LG Household Healthcare |
| LG Chemicals |
LG Household and LG Chemicals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Household and LG Chemicals
The main advantage of trading using opposite LG Household and LG Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, LG Chemicals 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 LG Chemicals will offset losses from the drop in LG Chemicals' long position.| LG Household vs. LG Household Healthcare | LG Household vs. Amorepacific Corp | LG Household vs. CKH Food Health |
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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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