Correlation Between Universal Entertainment and LG Display
Can any of the company-specific risk be diversified away by investing in both Universal Entertainment and LG Display 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 Universal Entertainment and LG Display into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Universal Entertainment and LG Display Co, you can compare the effects of market volatilities on Universal Entertainment and LG Display 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 Universal Entertainment with a short position of LG Display. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Entertainment and LG Display.
Diversification Opportunities for Universal Entertainment and LG Display
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Universal and LGA is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Universal Entertainment and LG Display Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Display and Universal Entertainment 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 Universal Entertainment are associated (or correlated) with LG Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Display has no effect on the direction of Universal Entertainment i.e., Universal Entertainment and LG Display go up and down completely randomly.
Pair Corralation between Universal Entertainment and LG Display
Assuming the 90 days trading horizon Universal Entertainment is expected to under-perform the LG Display. In addition to that, Universal Entertainment is 1.03 times more volatile than LG Display Co. It trades about -0.08 of its total potential returns per unit of risk. LG Display Co is currently generating about -0.05 per unit of volatility. If you would invest 585.00 in LG Display Co on August 31, 2024 and sell it today you would lose (251.00) from holding LG Display Co or give up 42.91% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.74% |
| Values | Daily Returns |
Universal Entertainment vs. LG Display Co
Performance |
| Timeline |
| Universal Entertainment |
| LG Display |
Universal Entertainment and LG Display Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Entertainment and LG Display
The main advantage of trading using opposite Universal Entertainment and LG Display positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Entertainment position performs unexpectedly, LG Display 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 Display will offset losses from the drop in LG Display's long position.The idea behind Universal Entertainment and LG Display 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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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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