Correlation Between Samsung Life and LG Household

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

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

Diversification Opportunities for Samsung Life and LG Household

-0.53

Correlation Coefficient

Samsung Life  LG Household

Excellent diversification

The 3 months correlation between Samsung and 051905 is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Samsung Life Insurance 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 Samsung Life 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 Samsung Life Insurance 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 Samsung Life i.e., Samsung Life and LG Household go up and down completely randomly.

Pair Corralation between Samsung Life and LG Household

Assuming the 90 days trading horizon Samsung Life Insurance is expected to generate 1.01 times more return on investment than LG Household. However, Samsung Life is 1.01 times more volatile than LG Household Healthcare. It trades about 0.05 of its potential returns per unit of risk. LG Household Healthcare is currently generating about -0.07 per unit of risk. If you would invest  6,866,156  in Samsung Life Insurance on September 28, 2024 and sell it today you would earn a total of  3,183,844  from holding Samsung Life Insurance or generate 46.37% return on investment over 90 days.

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

Samsung Life Insurance  vs.  LG Household Healthcare

Samsung Life Insurance

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Samsung Life Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Samsung Life may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Samsung Life and LG Household

The main advantage of trading using opposite Samsung Life and LG Household positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Samsung Life 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 Samsung Life Insurance 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.