Correlation Between Taeyang Metal and LS Materials

Can any of the company-specific risk be diversified away by investing in both Taeyang Metal and LS 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 Taeyang Metal and LS Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taeyang Metal Industrial and LS Materials, you can compare the effects of market volatilities on Taeyang Metal and LS 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 Taeyang Metal with a short position of LS Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taeyang Metal and LS Materials.

Diversification Opportunities for Taeyang Metal and LS Materials

0.07

Correlation Coefficient

Taeyang Metal  LS Materials

Significant diversification

The 3 months correlation between Taeyang and 417200 is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Taeyang Metal Industrial and LS Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LS Materials and Taeyang Metal 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 Taeyang Metal Industrial are associated (or correlated) with LS Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LS Materials has no effect on the direction of Taeyang Metal i.e., Taeyang Metal and LS Materials go up and down completely randomly.

Pair Corralation between Taeyang Metal and LS Materials

Assuming the 90 days trading horizon Taeyang Metal Industrial is expected to generate 2.13 times more return on investment than LS Materials. However, Taeyang Metal is 2.13 times more volatile than LS Materials. It trades about 0.08 of its potential returns per unit of risk. LS Materials is currently generating about -0.33 per unit of risk. If you would invest  463,500  in Taeyang Metal Industrial on September 12, 2024 and sell it today you would earn a total of  87,500  from holding Taeyang Metal Industrial or generate 18.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Taeyang Metal Industrial  vs.  LS Materials

Taeyang Metal Industrial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taeyang Metal Industrial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Taeyang Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

LS Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LS Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Taeyang Metal and LS Materials

The main advantage of trading using opposite Taeyang Metal and LS Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taeyang Metal position performs unexpectedly, LS 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 LS Materials will offset losses from the drop in LS Materials' long position.

The idea behind Taeyang Metal Industrial and LS Materials 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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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.