Correlation Between LG Display and Nestlé SA
Can any of the company-specific risk be diversified away by investing in both LG Display and Nestlé SA 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 Display and Nestlé SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LG Display Co and Nestl SA, you can compare the effects of market volatilities on LG Display and Nestlé SA 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 Display with a short position of Nestlé SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Display and Nestlé SA.
Diversification Opportunities for LG Display and Nestlé SA
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LGA and Nestlé is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding LG Display Co and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestlé SA and LG Display 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 Display Co are associated (or correlated) with Nestlé SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestlé SA has no effect on the direction of LG Display i.e., LG Display and Nestlé SA go up and down completely randomly.
Pair Corralation between LG Display and Nestlé SA
Assuming the 90 days horizon LG Display Co is expected to generate 1.43 times more return on investment than Nestlé SA. However, LG Display is 1.43 times more volatile than Nestl SA. It trades about 0.19 of its potential returns per unit of risk. Nestl SA is currently generating about -0.02 per unit of risk. If you would invest 298.00 in LG Display Co on October 12, 2024 and sell it today you would earn a total of 14.00 from holding LG Display Co or generate 4.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Display Co vs. Nestl SA
Performance |
| Timeline |
| LG Display |
| Nestlé SA |
LG Display and Nestlé SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Display and Nestlé SA
The main advantage of trading using opposite LG Display and Nestlé SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Display position performs unexpectedly, Nestlé SA 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 Nestlé SA will offset losses from the drop in Nestlé SA's long position.| LG Display vs. Zoom Video Communications | LG Display vs. DETALION GAMES SA | LG Display vs. GAMESTOP | LG Display vs. Penn National Gaming |
| Nestlé SA vs. Rayonier Advanced Materials | Nestlé SA vs. LG Display Co | Nestlé SA vs. EAGLE MATERIALS | Nestlé SA vs. Vulcan Materials |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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