Correlation Between Hanshin Construction and LG Household

Can any of the company-specific risk be diversified away by investing in both Hanshin Construction and LG Household 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 Hanshin Construction and LG Household into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hanshin Construction Co and LG Household Healthcare, you can compare the effects of market volatilities on Hanshin Construction and LG Household 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 Hanshin Construction with a short position of LG Household. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanshin Construction and LG Household.

Diversification Opportunities for Hanshin Construction and LG Household

0.34

Correlation Coefficient

Hanshin Construction  LG Household

Weak diversification

The 3 months correlation between Hanshin and 051900 is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Hanshin Construction Co and LG Household Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Household Healthcare and Hanshin Construction 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 Hanshin Construction Co are associated (or correlated) with LG Household. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Household Healthcare has no effect on the direction of Hanshin Construction i.e., Hanshin Construction and LG Household go up and down completely randomly.

Pair Corralation between Hanshin Construction and LG Household

Assuming the 90 days trading horizon Hanshin Construction Co is expected to generate 1.48 times more return on investment than LG Household. However, Hanshin Construction is 1.48 times more volatile than LG Household Healthcare. It trades about -0.07 of its potential returns per unit of risk. LG Household Healthcare is currently generating about -0.11 per unit of risk. If you would invest  684,000  in Hanshin Construction Co on September 23, 2024 and sell it today you would lose (28,000) from holding Hanshin Construction Co or give up 4.09% of portfolio value over 90 days.

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

Hanshin Construction Co  vs.  LG Household Healthcare

Hanshin Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hanshin Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hanshin Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

LG Household Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Household Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Hanshin Construction and LG Household

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

The idea behind Hanshin Construction Co and LG Household Healthcare 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.