Correlation Between LS Materials and LG Chemicals

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

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

Diversification Opportunities for LS Materials and LG Chemicals

-0.39

Correlation Coefficient

LS Materials  LG Chemicals

Very good diversification

The 3 months correlation between 417200 and 051910 is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding LS Materials and LG Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chemicals and LS Materials 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 LS Materials 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 LS Materials i.e., LS Materials and LG Chemicals go up and down completely randomly.

Pair Corralation between LS Materials and LG Chemicals

Assuming the 90 days trading horizon LS Materials is expected to generate 1.29 times more return on investment than LG Chemicals. However, LS Materials is 1.29 times more volatile than LG Chemicals. It trades about 0.05 of its potential returns per unit of risk. LG Chemicals is currently generating about 0.04 per unit of risk. If you would invest  1,124,000  in LS Materials on December 24, 2024 and sell it today you would earn a total of  79,000  from holding LS Materials or generate 7.03% return on investment over 90 days.

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

LS Materials  vs.  LG Chemicals

LS Materials

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LS Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LS Materials may actually be approaching a critical reversion point that can send shares even higher in April 2025.

LG Chemicals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LG Chemicals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LG Chemicals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with LS Materials and LG Chemicals

The main advantage of trading using opposite LS Materials and LG Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LS Materials 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 LS Materials 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.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.