Correlation Between LG Electronics and Korea Electric

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

By analyzing existing cross correlation between LG Electronics and Korea Electric Power, you can compare the effects of market volatilities on LG Electronics and Korea Electric 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 Korea Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Electronics and Korea Electric.

Diversification Opportunities for LG Electronics and Korea Electric

-0.64

Correlation Coefficient

LG Electronics  Korea Electric

Excellent diversification

The 3 months correlation between 066570 and Korea is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding LG Electronics and Korea Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Electric Power 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 Korea Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Electric Power has no effect on the direction of LG Electronics i.e., LG Electronics and Korea Electric go up and down completely randomly.

Pair Corralation between LG Electronics and Korea Electric

Assuming the 90 days trading horizon LG Electronics is expected to under-perform the Korea Electric. In addition to that, LG Electronics is 1.04 times more volatile than Korea Electric Power. It trades about -0.09 of its total potential returns per unit of risk. Korea Electric Power is currently generating about 0.1 per unit of volatility. If you would invest  2,140,000  in Korea Electric Power on September 2, 2024 and sell it today you would earn a total of  250,000  from holding Korea Electric Power or generate 11.68% return on investment over 90 days.

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

LG Electronics  vs.  Korea Electric Power

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.

Korea Electric Power

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Electric Power are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Electric sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LG Electronics and Korea Electric

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

The idea behind LG Electronics and Korea Electric Power 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.