Correlation Between Korea Information and LG Energy

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

By analyzing existing cross correlation between Korea Information Engineering and LG Energy Solution, you can compare the effects of market volatilities on Korea Information and LG Energy 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 Korea Information with a short position of LG Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Information and LG Energy.

Diversification Opportunities for Korea Information and LG Energy

0.23

Correlation Coefficient

Korea Information  LG Energy

Modest diversification

The 3 months correlation between Korea and 373220 is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Korea Information Engineering and LG Energy Solution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Energy Solution and Korea Information 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 Korea Information Engineering are associated (or correlated) with LG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Energy Solution has no effect on the direction of Korea Information i.e., Korea Information and LG Energy go up and down completely randomly.

Pair Corralation between Korea Information and LG Energy

Assuming the 90 days trading horizon Korea Information Engineering is expected to generate 0.73 times more return on investment than LG Energy. However, Korea Information Engineering is 1.37 times less risky than LG Energy. It trades about -0.02 of its potential returns per unit of risk. LG Energy Solution is currently generating about -0.07 per unit of risk. If you would invest  261,500  in Korea Information Engineering on September 26, 2024 and sell it today you would lose (11,500) from holding Korea Information Engineering or give up 4.4% of portfolio value over 90 days.

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

Korea Information Engineering  vs.  LG Energy Solution

Korea Information

Risk-Adjusted Performance

0 of 100

Very Weak

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

LG Energy Solution

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Energy Solution 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 Korea Information and LG Energy

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

The idea behind Korea Information Engineering and LG Energy Solution 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.