Correlation Between LG Household and Finetechnix CoLtd

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

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

Diversification Opportunities for LG Household and Finetechnix CoLtd

0.39

Correlation Coefficient

LG Household  Finetechnix CoLtd

Weak diversification

The 3 months correlation between 051900 and Finetechnix is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and Finetechnix CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finetechnix CoLtd and LG Household 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 LG Household Healthcare are associated (or correlated) with Finetechnix CoLtd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finetechnix CoLtd has no effect on the direction of LG Household i.e., LG Household and Finetechnix CoLtd go up and down completely randomly.

Pair Corralation between LG Household and Finetechnix CoLtd

Assuming the 90 days trading horizon LG Household Healthcare is expected to under-perform the Finetechnix CoLtd. But the stock apears to be less risky and, when comparing its historical volatility, LG Household Healthcare is 1.17 times less risky than Finetechnix CoLtd. The stock trades about -0.06 of its potential returns per unit of risk. The Finetechnix CoLtd is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  247,000  in Finetechnix CoLtd on October 11, 2024 and sell it today you would lose (138,800) from holding Finetechnix CoLtd or give up 56.19% of portfolio value over 90 days.

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

LG Household Healthcare  vs.  Finetechnix CoLtd

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.

Finetechnix CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with LG Household and Finetechnix CoLtd

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

The idea behind LG Household Healthcare and Finetechnix CoLtd 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.