Correlation Between ITM Semiconductor and LG Energy

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

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

Diversification Opportunities for ITM Semiconductor and LG Energy

0.3

Correlation Coefficient

ITM Semiconductor  LG Energy

Weak diversification

The 3 months correlation between ITM and 373220 is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding ITM Semiconductor Co and LG Energy Solution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Energy Solution and ITM Semiconductor 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 ITM Semiconductor Co are associated (or correlated) with LG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Energy Solution has no effect on the direction of ITM Semiconductor i.e., ITM Semiconductor and LG Energy go up and down completely randomly.

Pair Corralation between ITM Semiconductor and LG Energy

Assuming the 90 days trading horizon ITM Semiconductor Co is expected to under-perform the LG Energy. But the stock apears to be less risky and, when comparing its historical volatility, ITM Semiconductor Co is 1.3 times less risky than LG Energy. The stock trades about -0.38 of its potential returns per unit of risk. The LG Energy Solution is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  39,950,000  in LG Energy Solution on September 13, 2024 and sell it today you would lose (2,150,000) from holding LG Energy Solution or give up 5.38% of portfolio value over 90 days.

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

ITM Semiconductor Co  vs.  LG Energy Solution

ITM Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITM Semiconductor 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.

LG Energy Solution

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Energy Solution has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LG Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ITM Semiconductor and LG Energy

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

The idea behind ITM Semiconductor Co and LG Energy Solution 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.