Correlation Between Dongwoo Farm and LG Corp

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

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

Diversification Opportunities for Dongwoo Farm and LG Corp

0.58

Correlation Coefficient

Dongwoo Farm  LG Corp

Very weak diversification

The 3 months correlation between Dongwoo and 003550 is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Dongwoo Farm To and LG Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Corp and Dongwoo Farm 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 Dongwoo Farm To are associated (or correlated) with LG Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Corp has no effect on the direction of Dongwoo Farm i.e., Dongwoo Farm and LG Corp go up and down completely randomly.

Pair Corralation between Dongwoo Farm and LG Corp

Assuming the 90 days trading horizon Dongwoo Farm To is expected to under-perform the LG Corp. But the stock apears to be less risky and, when comparing its historical volatility, Dongwoo Farm To is 1.26 times less risky than LG Corp. The stock trades about -0.04 of its potential returns per unit of risk. The LG Corp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  8,230,000  in LG Corp on October 10, 2024 and sell it today you would lose (770,000) from holding LG Corp or give up 9.36% of portfolio value over 90 days.

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

Dongwoo Farm To  vs.  LG Corp

Dongwoo Farm To

Risk-Adjusted Performance

0 of 100

Very Weak

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

LG Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dongwoo Farm and LG Corp

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

The idea behind Dongwoo Farm To and LG Corp 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.