Correlation Between LG Display and STMicroelectronics
Can any of the company-specific risk be diversified away by investing in both LG Display and STMicroelectronics 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 STMicroelectronics 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 STMicroelectronics NV, you can compare the effects of market volatilities on LG Display and STMicroelectronics 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 STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Display and STMicroelectronics.
Diversification Opportunities for LG Display and STMicroelectronics
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LGA and STMicroelectronics is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding LG Display Co and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of LG Display i.e., LG Display and STMicroelectronics go up and down completely randomly.
Pair Corralation between LG Display and STMicroelectronics
Assuming the 90 days horizon LG Display Co is expected to generate 0.89 times more return on investment than STMicroelectronics. However, LG Display Co is 1.12 times less risky than STMicroelectronics. It trades about -0.09 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.11 per unit of risk. If you would invest 372.00 in LG Display Co on September 2, 2024 and sell it today you would lose (44.00) from holding LG Display Co or give up 11.83% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Display Co vs. STMicroelectronics NV
Performance |
| Timeline |
| LG Display |
| STMicroelectronics |
LG Display and STMicroelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Display and STMicroelectronics
The main advantage of trading using opposite LG Display and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Display position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.| LG Display vs. Apple Inc | LG Display vs. Apple Inc | LG Display vs. Samsung Electronics Co | LG Display vs. Samsung Electronics 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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