Correlation Between LG Household and KMH Hitech
Can any of the company-specific risk be diversified away by investing in both LG Household and KMH Hitech 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 KMH Hitech 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 KMH Hitech Co, you can compare the effects of market volatilities on LG Household and KMH Hitech 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 KMH Hitech. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and KMH Hitech.
Diversification Opportunities for LG Household and KMH Hitech
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 051905 and KMH is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and KMH Hitech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KMH Hitech 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 KMH Hitech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KMH Hitech has no effect on the direction of LG Household i.e., LG Household and KMH Hitech go up and down completely randomly.
Pair Corralation between LG Household and KMH Hitech
Assuming the 90 days trading horizon LG Household Healthcare is expected to generate 0.84 times more return on investment than KMH Hitech. However, LG Household Healthcare is 1.19 times less risky than KMH Hitech. It trades about -0.01 of its potential returns per unit of risk. KMH Hitech Co is currently generating about -0.05 per unit of risk. If you would invest 14,400,000 in LG Household Healthcare on October 17, 2024 and sell it today you would lose (1,170,000) from holding LG Household Healthcare or give up 8.12% 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. KMH Hitech Co
Performance |
| Timeline |
| LG Household Healthcare |
| KMH Hitech |
LG Household and KMH Hitech Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Household and KMH Hitech
The main advantage of trading using opposite LG Household and KMH Hitech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, KMH Hitech 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 KMH Hitech will offset losses from the drop in KMH Hitech's long position.| LG Household vs. T3 Entertainment Co | LG Household vs. Phoenix Materials Co | LG Household vs. Ecoplastic | LG Household vs. Kaonmedia Co |
| KMH Hitech vs. LG Household Healthcare | KMH Hitech vs. SungMoon Electronics Co | KMH Hitech vs. System and Application | KMH Hitech vs. Daeduck Electronics Co |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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