Correlation Between LG Electronics and Applied Materials
Can any of the company-specific risk be diversified away by investing in both LG Electronics and Applied Materials 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 Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LG Electronics and Applied Materials, you can compare the effects of market volatilities on LG Electronics and Applied Materials 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 Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Electronics and Applied Materials.
Diversification Opportunities for LG Electronics and Applied Materials
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between LGLG and Applied is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding LG Electronics and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of LG Electronics i.e., LG Electronics and Applied Materials go up and down completely randomly.
Pair Corralation between LG Electronics and Applied Materials
Assuming the 90 days trading horizon LG Electronics is expected to under-perform the Applied Materials. But the stock apears to be less risky and, when comparing its historical volatility, LG Electronics is 1.83 times less risky than Applied Materials. The stock trades about -0.1 of its potential returns per unit of risk. The Applied Materials is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 16,758 in Applied Materials on September 3, 2024 and sell it today you would earn a total of 120.00 from holding Applied Materials or generate 0.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LG Electronics vs. Applied Materials
Performance |
| Timeline |
| LG Electronics |
| Applied Materials |
LG Electronics and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LG Electronics and Applied Materials
The main advantage of trading using opposite LG Electronics and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Electronics position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.| LG Electronics vs. Summit Hotel Properties | LG Electronics vs. SENECA FOODS A | LG Electronics vs. Meli Hotels International | LG Electronics vs. MELIA HOTELS |
| Applied Materials vs. ASML HOLDING NY | Applied Materials vs. ASML Holding NV | Applied Materials vs. ASML Holding NV | Applied Materials vs. Lam Research |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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