Correlation Between Next Entertainment and LG Chemicals

Can any of the company-specific risk be diversified away by investing in both Next 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 Next 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 Next Entertainment World and LG Chemicals, you can compare the effects of market volatilities on Next 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 Next Entertainment with a short position of LG Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Next Entertainment and LG Chemicals.

Diversification Opportunities for Next Entertainment and LG Chemicals

0.37

Correlation Coefficient

Next Entertainment  LG Chemicals

Weak diversification

The 3 months correlation between Next and 051910 is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Next Entertainment World and LG Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chemicals and Next 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 Next Entertainment World 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 Next Entertainment i.e., Next Entertainment and LG Chemicals go up and down completely randomly.

Pair Corralation between Next Entertainment and LG Chemicals

Assuming the 90 days trading horizon Next Entertainment World is expected to under-perform the LG Chemicals. In addition to that, Next Entertainment is 1.01 times more volatile than LG Chemicals. It trades about -0.05 of its total potential returns per unit of risk. LG Chemicals is currently generating about 0.04 per unit of volatility. If you would invest  24,800,000  in LG Chemicals on December 25, 2024 and sell it today you would earn a total of  1,150,000  from holding LG Chemicals or generate 4.64% return on investment over 90 days.

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

Next Entertainment World  vs.  LG Chemicals

Next Entertainment World

Risk-Adjusted Performance

Very Weak

Over the last 90 days Next Entertainment World has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

LG Chemicals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LG Chemicals are ranked lower than 3 (%) 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 Next Entertainment and LG Chemicals

The main advantage of trading using opposite Next Entertainment and LG Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Next 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 Next Entertainment World 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.