Correlation Between LG Electronics and Elentec Co

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

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

Diversification Opportunities for LG Electronics and Elentec Co

0.84

Correlation Coefficient

LG Electronics  Elentec Co

Very poor diversification

The 3 months correlation between 066570 and Elentec is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding LG Electronics and Elentec Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elentec Co 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 Elentec Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elentec Co has no effect on the direction of LG Electronics i.e., LG Electronics and Elentec Co go up and down completely randomly.

Pair Corralation between LG Electronics and Elentec Co

Assuming the 90 days trading horizon LG Electronics is expected to under-perform the Elentec Co. But the stock apears to be less risky and, when comparing its historical volatility, LG Electronics is 1.76 times less risky than Elentec Co. The stock trades about -0.16 of its potential returns per unit of risk. The Elentec Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  555,000  in Elentec Co on September 23, 2024 and sell it today you would lose (48,000) from holding Elentec Co or give up 8.65% of portfolio value over 90 days.

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

LG Electronics  vs.  Elentec 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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Elentec Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elentec Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with LG Electronics and Elentec Co

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

The idea behind LG Electronics and Elentec 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.