Correlation Between LG Energy and NOVATECH

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Can any of the company-specific risk be diversified away by investing in both LG Energy and NOVATECH 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 Energy and NOVATECH into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LG Energy Solution and NOVATECH Co, you can compare the effects of market volatilities on LG Energy and NOVATECH 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 Energy with a short position of NOVATECH. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Energy and NOVATECH.

Diversification Opportunities for LG Energy and NOVATECH

373220NOVATECHDiversified Away373220NOVATECHDiversified Away100%
-0.79
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between 373220 and NOVATECH is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding LG Energy Solution and NOVATECH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVATECH and LG Energy 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 Energy Solution are associated (or correlated) with NOVATECH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOVATECH has no effect on the direction of LG Energy i.e., LG Energy and NOVATECH go up and down completely randomly.

Pair Corralation between LG Energy and NOVATECH

Assuming the 90 days trading horizon LG Energy Solution is expected to generate 1.9 times more return on investment than NOVATECH. However, LG Energy is 1.9 times more volatile than NOVATECH Co. It trades about 0.16 of its potential returns per unit of risk. NOVATECH Co is currently generating about -0.21 per unit of risk. If you would invest  35,350,000  in LG Energy Solution on November 25, 2024 and sell it today you would earn a total of  2,500,000  from holding LG Energy Solution or generate 7.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

LG Energy Solution  vs.  NOVATECH Co

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -20020406080100
JavaScript chart by amCharts 3.21.15373220 285490
       Timeline  
LG Energy Solution 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days LG Energy Solution has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb340,000360,000380,000400,000420,000
NOVATECH 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in NOVATECH Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NOVATECH sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb12,00014,00016,00018,00020,000

LG Energy and NOVATECH Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.8-3.59-2.39-1.180.01.172.343.524.69 0.0200.0250.0300.0350.0400.045
JavaScript chart by amCharts 3.21.15373220 285490
       Returns  

Pair Trading with LG Energy and NOVATECH

The main advantage of trading using opposite LG Energy and NOVATECH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Energy position performs unexpectedly, NOVATECH 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 NOVATECH will offset losses from the drop in NOVATECH's long position.
The idea behind LG Energy Solution and NOVATECH Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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