Correlation Between YG Entertainment and LG Chemicals

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

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

Diversification Opportunities for YG Entertainment and LG Chemicals

-0.26

Correlation Coefficient

YG Entertainment  LG Chemicals

Very good diversification

The 3 months correlation between 122870 and 051910 is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding YG Entertainment and LG Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chemicals and YG Entertainment 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 YG Entertainment are associated (or correlated) with LG Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Chemicals has no effect on the direction of YG Entertainment i.e., YG Entertainment and LG Chemicals go up and down completely randomly.

Pair Corralation between YG Entertainment and LG Chemicals

Assuming the 90 days trading horizon YG Entertainment is expected to generate 0.87 times more return on investment than LG Chemicals. However, YG Entertainment is 1.15 times less risky than LG Chemicals. It trades about 0.24 of its potential returns per unit of risk. LG Chemicals is currently generating about 0.05 per unit of risk. If you would invest  4,550,000  in YG Entertainment on December 25, 2024 and sell it today you would earn a total of  1,850,000  from holding YG Entertainment or generate 40.66% return on investment over 90 days.

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

YG Entertainment  vs.  LG Chemicals

YG Entertainment

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in YG Entertainment are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, YG Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

LG Chemicals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LG Chemicals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LG Chemicals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with YG Entertainment and LG Chemicals

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

The idea behind YG Entertainment and LG Chemicals 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.