Correlation Between LG Household and Ssangyong Information

Can any of the company-specific risk be diversified away by investing in both LG Household and Ssangyong Information 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 Ssangyong Information 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 Ssangyong Information Communication, you can compare the effects of market volatilities on LG Household and Ssangyong Information 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 Ssangyong Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and Ssangyong Information.

Diversification Opportunities for LG Household and Ssangyong Information

-0.29

Correlation Coefficient

LG Household  Ssangyong Information

Very good diversification

The 3 months correlation between 051905 and Ssangyong is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and Ssangyong Information Communic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ssangyong Information 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 Ssangyong Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ssangyong Information has no effect on the direction of LG Household i.e., LG Household and Ssangyong Information go up and down completely randomly.

Pair Corralation between LG Household and Ssangyong Information

Assuming the 90 days trading horizon LG Household is expected to generate 21.91 times less return on investment than Ssangyong Information. But when comparing it to its historical volatility, LG Household Healthcare is 5.47 times less risky than Ssangyong Information. It trades about 0.03 of its potential returns per unit of risk. Ssangyong Information Communication is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  61,600  in Ssangyong Information Communication on December 5, 2024 and sell it today you would earn a total of  9,500  from holding Ssangyong Information Communication or generate 15.42% return on investment over 90 days.

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

LG Household Healthcare  vs.  Ssangyong Information Communic

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 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.

Ssangyong Information

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ssangyong Information Communication are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ssangyong Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LG Household and Ssangyong Information

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

The idea behind LG Household Healthcare and Ssangyong Information Communication 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.