Correlation Between Lotte Chilsung and LG Household

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

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

Diversification Opportunities for Lotte Chilsung and LG Household

0.72

Correlation Coefficient

Lotte Chilsung  LG Household

Poor diversification

The 3 months correlation between Lotte and 051905 is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Lotte Chilsung Beverage 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 Lotte Chilsung 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 Lotte Chilsung Beverage 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 Lotte Chilsung i.e., Lotte Chilsung and LG Household go up and down completely randomly.

Pair Corralation between Lotte Chilsung and LG Household

Assuming the 90 days trading horizon Lotte Chilsung Beverage is expected to generate 1.37 times more return on investment than LG Household. However, Lotte Chilsung is 1.37 times more volatile than LG Household Healthcare. It trades about -0.11 of its potential returns per unit of risk. LG Household Healthcare is currently generating about -0.22 per unit of risk. If you would invest  11,890,000  in Lotte Chilsung Beverage on October 24, 2024 and sell it today you would lose (1,450,000) from holding Lotte Chilsung Beverage or give up 12.2% of portfolio value over 90 days.

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

Lotte Chilsung Beverage  vs.  LG Household Healthcare

Lotte Chilsung Beverage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotte Chilsung Beverage 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.

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lotte Chilsung and LG Household

The main advantage of trading using opposite Lotte Chilsung and LG Household positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotte Chilsung 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 Lotte Chilsung Beverage 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.