Correlation Between Formetal and LG Electronics

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

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

Diversification Opportunities for Formetal and LG Electronics

-0.41

Correlation Coefficient

Formetal  LG Electronics

Very good diversification

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

Pair Corralation between Formetal and LG Electronics

Assuming the 90 days trading horizon Formetal Co is expected to generate 2.38 times more return on investment than LG Electronics. However, Formetal is 2.38 times more volatile than LG Electronics. It trades about 0.01 of its potential returns per unit of risk. LG Electronics is currently generating about -0.03 per unit of risk. If you would invest  300,000  in Formetal Co on December 30, 2024 and sell it today you would lose (8,500) from holding Formetal Co or give up 2.83% of portfolio value over 90 days.

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

Formetal Co  vs.  LG Electronics

Formetal

Risk-Adjusted Performance

Very Weak

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

LG Electronics

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Formetal and LG Electronics

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

The idea behind Formetal Co and LG Electronics 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 Global Correlations module to find global opportunities by holding instruments from different markets.