Correlation Between Xiaomi and LG Electronics
Can any of the company-specific risk be diversified away by investing in both Xiaomi and LG Electronics 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 Xiaomi and LG Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xiaomi and LG Electronics, you can compare the effects of market volatilities on Xiaomi and LG Electronics 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 Xiaomi with a short position of LG Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiaomi and LG Electronics.
Diversification Opportunities for Xiaomi and LG Electronics
-0.85 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Xiaomi and LGLG is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Xiaomi and LG Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Electronics and Xiaomi 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 Xiaomi are associated (or correlated) with LG Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Electronics has no effect on the direction of Xiaomi i.e., Xiaomi and LG Electronics go up and down completely randomly.
Pair Corralation between Xiaomi and LG Electronics
Assuming the 90 days horizon Xiaomi is expected to generate 1.26 times more return on investment than LG Electronics. However, Xiaomi is 1.26 times more volatile than LG Electronics. It trades about 0.27 of its potential returns per unit of risk. LG Electronics is currently generating about -0.05 per unit of risk. If you would invest 219.00 in Xiaomi on November 2, 2024 and sell it today you would earn a total of 286.00 from holding Xiaomi or generate 130.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 99.04% |
| Values | Daily Returns |
Xiaomi vs. LG Electronics
Performance |
| Timeline |
| Xiaomi |
| LG Electronics |
Xiaomi and LG Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xiaomi and LG Electronics
The main advantage of trading using opposite Xiaomi and LG Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xiaomi position performs unexpectedly, LG Electronics 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 LG Electronics will offset losses from the drop in LG Electronics' long position.The idea behind Xiaomi and LG Electronics 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.| LG Electronics vs. Apple Inc | LG Electronics vs. Apple Inc | LG Electronics vs. Samsung Electronics Co | LG Electronics vs. Sony Group Corp |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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