Correlation Between Daejung Chemicals and LG Display

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

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

Diversification Opportunities for Daejung Chemicals and LG Display

0.18

Correlation Coefficient

Daejung Chemicals  LG Display

Average diversification

The 3 months correlation between Daejung and 034220 is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Daejung Chemicals Metals and LG Display in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Display and Daejung Chemicals 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 Daejung Chemicals Metals are associated (or correlated) with LG Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Display has no effect on the direction of Daejung Chemicals i.e., Daejung Chemicals and LG Display go up and down completely randomly.

Pair Corralation between Daejung Chemicals and LG Display

Assuming the 90 days trading horizon Daejung Chemicals Metals is expected to generate 0.55 times more return on investment than LG Display. However, Daejung Chemicals Metals is 1.8 times less risky than LG Display. It trades about 0.0 of its potential returns per unit of risk. LG Display is currently generating about -0.01 per unit of risk. If you would invest  1,269,000  in Daejung Chemicals Metals on December 25, 2024 and sell it today you would lose (6,000) from holding Daejung Chemicals Metals or give up 0.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.25%
Values	Daily Returns

Daejung Chemicals Metals  vs.  LG Display

Daejung Chemicals Metals

Risk-Adjusted Performance

Very Weak

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

LG Display

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Daejung Chemicals and LG Display

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

The idea behind Daejung Chemicals Metals and LG Display 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.