Correlation Between LG Chemicals and LG Display

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

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

Diversification Opportunities for LG Chemicals and LG Display

0.45

Correlation Coefficient

LG Chemicals  LG Display

Very weak diversification

The 3 months correlation between 051910 and 034220 is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding LG Chemicals and LG Display in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Display and LG Chemicals 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 Chemicals are associated (or correlated) with LG Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Display has no effect on the direction of LG Chemicals i.e., LG Chemicals and LG Display go up and down completely randomly.

Pair Corralation between LG Chemicals and LG Display

Assuming the 90 days trading horizon LG Chemicals is expected to under-perform the LG Display. In addition to that, LG Chemicals is 1.36 times more volatile than LG Display. It trades about -0.06 of its total potential returns per unit of risk. LG Display is currently generating about 0.02 per unit of volatility. If you would invest  948,000  in LG Display on November 29, 2024 and sell it today you would earn a total of  6,000  from holding LG Display or generate 0.63% return on investment over 90 days.

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

LG Chemicals  vs.  LG Display

LG Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days LG Chemicals 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 Display

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LG Display are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, LG Display 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 Chemicals and LG Display

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

The idea behind LG Chemicals and LG Display 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.