Correlation Between Total Soft and LG Household

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

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

Diversification Opportunities for Total Soft and LG Household

0.68

Correlation Coefficient

Total Soft  LG Household

Poor diversification

The 3 months correlation between Total and 051905 is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Total Soft Bank 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 Total Soft 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 Total Soft Bank 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 Total Soft i.e., Total Soft and LG Household go up and down completely randomly.

Pair Corralation between Total Soft and LG Household

Assuming the 90 days trading horizon Total Soft Bank is expected to under-perform the LG Household. In addition to that, Total Soft is 4.19 times more volatile than LG Household Healthcare. It trades about -0.02 of its total potential returns per unit of risk. LG Household Healthcare is currently generating about -0.05 per unit of volatility. If you would invest  13,387,700  in LG Household Healthcare on December 29, 2024 and sell it today you would lose (517,700) from holding LG Household Healthcare or give up 3.87% of portfolio value over 90 days.

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

Total Soft Bank  vs.  LG Household Healthcare

Total Soft Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Total Soft Bank 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

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 somewhat strong basic indicators, LG Household is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Total Soft and LG Household

The main advantage of trading using opposite Total Soft and LG Household positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Soft 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 Total Soft Bank 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.