Correlation Between Samsung Biologics and LG Chemicals

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

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

Diversification Opportunities for Samsung Biologics and LG Chemicals

0.59

Correlation Coefficient

Samsung Biologics  LG Chemicals

Very weak diversification

The 3 months correlation between Samsung and 051910 is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Samsung Biologics Co and LG Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chemicals and Samsung Biologics 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 Samsung Biologics Co 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 Samsung Biologics i.e., Samsung Biologics and LG Chemicals go up and down completely randomly.

Pair Corralation between Samsung Biologics and LG Chemicals

Assuming the 90 days trading horizon Samsung Biologics Co is expected to generate 0.5 times more return on investment than LG Chemicals. However, Samsung Biologics Co is 1.98 times less risky than LG Chemicals. It trades about -0.03 of its potential returns per unit of risk. LG Chemicals is currently generating about -0.03 per unit of risk. If you would invest  98,000,000  in Samsung Biologics Co on August 30, 2024 and sell it today you would lose (2,700,000) from holding Samsung Biologics Co or give up 2.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Samsung Biologics Co  vs.  LG Chemicals

Samsung Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

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

LG Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Samsung Biologics and LG Chemicals

The main advantage of trading using opposite Samsung Biologics and LG Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Samsung Biologics 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 Samsung Biologics Co 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.