Correlation Between LIG ES and LG Chem

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

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

Diversification Opportunities for LIG ES and LG Chem

-0.66

Correlation Coefficient

LIG ES  LG Chem

Excellent diversification

The 3 months correlation between LIG and 051915 is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding LIG ES SPAC and LG Chem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chem and LIG ES 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 LIG ES SPAC are associated (or correlated) with LG Chem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Chem has no effect on the direction of LIG ES i.e., LIG ES and LG Chem go up and down completely randomly.

Pair Corralation between LIG ES and LG Chem

Assuming the 90 days trading horizon LIG ES SPAC is expected to generate 1.78 times more return on investment than LG Chem. However, LIG ES is 1.78 times more volatile than LG Chem. It trades about 0.11 of its potential returns per unit of risk. LG Chem is currently generating about -0.31 per unit of risk. If you would invest  348,000  in LIG ES SPAC on December 2, 2024 and sell it today you would earn a total of  101,500  from holding LIG ES SPAC or generate 29.17% return on investment over 90 days.

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

LIG ES SPAC  vs.  LG Chem

LIG ES SPAC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LIG ES SPAC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LIG ES sustained solid returns over the last few months and may actually be approaching a breakup point.

LG Chem

Risk-Adjusted Performance

Very Weak

Over the last 90 days LG Chem has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with LIG ES and LG Chem

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

The idea behind LIG ES SPAC and LG Chem 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.