Correlation Between LG Energy and Kolon Life

Can any of the company-specific risk be diversified away by investing in both LG Energy and Kolon Life 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 Kolon Life 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 Kolon Life Science, you can compare the effects of market volatilities on LG Energy and Kolon Life 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 Kolon Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Energy and Kolon Life.

Diversification Opportunities for LG Energy and Kolon Life

-0.64

Correlation Coefficient

LG Energy  Kolon Life

Excellent diversification

The 3 months correlation between 373220 and Kolon is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding LG Energy Solution and Kolon Life Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kolon Life Science 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 Kolon Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kolon Life Science has no effect on the direction of LG Energy i.e., LG Energy and Kolon Life go up and down completely randomly.

Pair Corralation between LG Energy and Kolon Life

Assuming the 90 days trading horizon LG Energy Solution is expected to under-perform the Kolon Life. But the stock apears to be less risky and, when comparing its historical volatility, LG Energy Solution is 2.34 times less risky than Kolon Life. The stock trades about -0.14 of its potential returns per unit of risk. The Kolon Life Science is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,851,000  in Kolon Life Science on October 9, 2024 and sell it today you would earn a total of  514,000  from holding Kolon Life Science or generate 27.77% return on investment over 90 days.

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

LG Energy Solution  vs.  Kolon Life Science

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Kolon Life Science

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kolon Life Science are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kolon Life sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LG Energy and Kolon Life

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

The idea behind LG Energy Solution and Kolon Life Science 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.