Correlation Between LG Electronics and Hankook Furniture

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

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

Diversification Opportunities for LG Electronics and Hankook Furniture

-0.41

Correlation Coefficient

LG Electronics  Hankook Furniture

Very good diversification

The 3 months correlation between 066570 and Hankook is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding LG Electronics and Hankook Furniture Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hankook Furniture and LG Electronics 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 Electronics are associated (or correlated) with Hankook Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hankook Furniture has no effect on the direction of LG Electronics i.e., LG Electronics and Hankook Furniture go up and down completely randomly.

Pair Corralation between LG Electronics and Hankook Furniture

Assuming the 90 days trading horizon LG Electronics is expected to under-perform the Hankook Furniture. But the stock apears to be less risky and, when comparing its historical volatility, LG Electronics is 1.43 times less risky than Hankook Furniture. The stock trades about -0.11 of its potential returns per unit of risk. The Hankook Furniture Co is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  369,000  in Hankook Furniture Co on September 4, 2024 and sell it today you would earn a total of  39,000  from holding Hankook Furniture Co or generate 10.57% return on investment over 90 days.

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

LG Electronics  vs.  Hankook Furniture Co

LG Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Electronics 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.

Hankook Furniture

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hankook Furniture Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hankook Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LG Electronics and Hankook Furniture

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

The idea behind LG Electronics and Hankook Furniture Co 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.