Correlation Between LG Energy and Daewoo Electronic

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

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

Diversification Opportunities for LG Energy and Daewoo Electronic

0.59

Correlation Coefficient

LG Energy  Daewoo Electronic

Very weak diversification

The 3 months correlation between 373220 and Daewoo is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding LG Energy Solution and Daewoo Electronic Components in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daewoo Electronic and LG Energy 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 LG Energy Solution are associated (or correlated) with Daewoo Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daewoo Electronic has no effect on the direction of LG Energy i.e., LG Energy and Daewoo Electronic go up and down completely randomly.

Pair Corralation between LG Energy and Daewoo Electronic

Assuming the 90 days trading horizon LG Energy Solution is expected to under-perform the Daewoo Electronic. In addition to that, LG Energy is 4.6 times more volatile than Daewoo Electronic Components. It trades about -0.01 of its total potential returns per unit of risk. Daewoo Electronic Components is currently generating about 0.13 per unit of volatility. If you would invest  100,400  in Daewoo Electronic Components on October 24, 2024 and sell it today you would earn a total of  1,300  from holding Daewoo Electronic Components or generate 1.29% return on investment over 90 days.

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

LG Energy Solution  vs.  Daewoo Electronic Components

LG Energy Solution

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Energy Solution 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.

Daewoo Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daewoo Electronic Components 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.

Pair Trading with LG Energy and Daewoo Electronic

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

The idea behind LG Energy Solution and Daewoo Electronic Components 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.