Correlation Between Solution Advanced and LG Display

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

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

Diversification Opportunities for Solution Advanced and LG Display

0.21

Correlation Coefficient

Solution Advanced  LG Display

Modest diversification

The 3 months correlation between Solution and 034220 is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Solution Advanced Technology and LG Display Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Display and Solution Advanced 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 Solution Advanced Technology 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 Solution Advanced i.e., Solution Advanced and LG Display go up and down completely randomly.

Pair Corralation between Solution Advanced and LG Display

Assuming the 90 days trading horizon Solution Advanced Technology is expected to generate 4.39 times more return on investment than LG Display. However, Solution Advanced is 4.39 times more volatile than LG Display Co. It trades about 0.18 of its potential returns per unit of risk. LG Display Co is currently generating about -0.01 per unit of risk. If you would invest  137,500  in Solution Advanced Technology on December 26, 2024 and sell it today you would earn a total of  110,500  from holding Solution Advanced Technology or generate 80.36% return on investment over 90 days.

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

Solution Advanced Technology  vs.  LG Display Co

Solution Advanced

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solution Advanced Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Solution Advanced sustained solid returns over the last few months and may actually be approaching a breakup point.

LG Display

Risk-Adjusted Performance

Very Weak

Over the last 90 days LG Display Co 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 Solution Advanced and LG Display

The main advantage of trading using opposite Solution Advanced and LG Display positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solution Advanced 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 Solution Advanced Technology and LG Display Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.