Correlation Between LG Electronics and Hyundai
Can any of the company-specific risk be diversified away by investing in both LG Electronics and Hyundai 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 Electronics and Hyundai into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LG Electronics and Hyundai Motor Co, you can compare the effects of market volatilities on LG Electronics and Hyundai 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 Electronics with a short position of Hyundai. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Electronics and Hyundai.
Diversification Opportunities for LG Electronics and Hyundai
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 066570 and Hyundai is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding LG Electronics and Hyundai Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor and LG Electronics 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 Electronics are associated (or correlated) with Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of LG Electronics i.e., LG Electronics and Hyundai go up and down completely randomly.
Pair Corralation between LG Electronics and Hyundai
Assuming the 90 days trading horizon LG Electronics is expected to under-perform the Hyundai. But the stock apears to be less risky and, when comparing its historical volatility, LG Electronics is 1.02 times less risky than Hyundai. The stock trades about -0.02 of its potential returns per unit of risk. The Hyundai Motor Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 15,270,000 in Hyundai Motor Co on October 25, 2024 and sell it today you would earn a total of 310,000 from holding Hyundai Motor Co or generate 2.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Electronics vs. Hyundai Motor Co
Performance |
| Timeline |
| LG Electronics |
| Hyundai Motor |
LG Electronics and Hyundai Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Electronics and Hyundai
The main advantage of trading using opposite LG Electronics and Hyundai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Electronics position performs unexpectedly, Hyundai 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 Hyundai will offset losses from the drop in Hyundai's long position.| LG Electronics vs. Sungmoon Electronics Co | LG Electronics vs. Kbi Metal Co | LG Electronics vs. Jahwa Electronics Co | LG Electronics vs. PJ Metal Co |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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