Correlation Between LG Household and DHP Korea
Can any of the company-specific risk be diversified away by investing in both LG Household and DHP Korea 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 DHP Korea 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 DHP Korea Co, you can compare the effects of market volatilities on LG Household and DHP Korea 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 DHP Korea. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and DHP Korea.
Diversification Opportunities for LG Household and DHP Korea
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between 051905 and DHP is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and DHP Korea Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DHP Korea 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 DHP Korea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DHP Korea has no effect on the direction of LG Household i.e., LG Household and DHP Korea go up and down completely randomly.
Pair Corralation between LG Household and DHP Korea
Assuming the 90 days trading horizon LG Household Healthcare is expected to generate 0.54 times more return on investment than DHP Korea. However, LG Household Healthcare is 1.85 times less risky than DHP Korea. It trades about -0.11 of its potential returns per unit of risk. DHP Korea Co is currently generating about -0.2 per unit of risk. If you would invest 15,090,000 in LG Household Healthcare on September 13, 2024 and sell it today you would lose (1,040,000) from holding LG Household Healthcare or give up 6.89% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Household Healthcare vs. DHP Korea Co
Performance |
| Timeline |
| LG Household Healthcare |
| DHP Korea |
LG Household and DHP Korea Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Household and DHP Korea
The main advantage of trading using opposite LG Household and DHP Korea positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, DHP Korea 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 DHP Korea will offset losses from the drop in DHP Korea's long position.| LG Household vs. iNtRON Biotechnology | LG Household vs. Jeju Air Co | LG Household vs. Ssangyong Information Communication | LG Household vs. Mobileleader CoLtd |
| DHP Korea vs. Humasis Co | DHP Korea vs. Access Bio | DHP Korea vs. DRGEM | DHP Korea vs. Busan Industrial 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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