Correlation Between LG Household and SPG
Can any of the company-specific risk be diversified away by investing in both LG Household and SPG 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 SPG 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 SPG Co, you can compare the effects of market volatilities on LG Household and SPG 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 SPG. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and SPG.
Diversification Opportunities for LG Household and SPG
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 051905 and SPG is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and SPG Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPG Co 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 SPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPG Co has no effect on the direction of LG Household i.e., LG Household and SPG go up and down completely randomly.
Pair Corralation between LG Household and SPG
Assuming the 90 days trading horizon LG Household Healthcare is expected to under-perform the SPG. But the stock apears to be less risky and, when comparing its historical volatility, LG Household Healthcare is 1.71 times less risky than SPG. The stock trades about -0.06 of its potential returns per unit of risk. The SPG Co is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 2,080,000 in SPG Co on August 31, 2024 and sell it today you would earn a total of 230,000 from holding SPG Co or generate 11.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
LG Household Healthcare vs. SPG Co
Performance |
| Timeline |
| LG Household Healthcare |
| SPG Co |
LG Household and SPG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Household and SPG
The main advantage of trading using opposite LG Household and SPG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, SPG 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 SPG will offset losses from the drop in SPG's long position.| LG Household vs. LG Household Healthcare | LG Household vs. Mirae Asset No2 | 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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