Correlation Between IShares Smart and LG Battery

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

By analyzing existing cross correlation between iShares Smart City and LG Battery Value Chain, you can compare the effects of market volatilities on IShares Smart and LG Battery 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 IShares Smart with a short position of LG Battery. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Smart and LG Battery.

Diversification Opportunities for IShares Smart and LG Battery

0.65

Correlation Coefficient

IShares Smart  LG Battery

Poor diversification

The 3 months correlation between IShares and BATE is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding iShares Smart City and LG Battery Value Chain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Battery Value and IShares Smart 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 iShares Smart City are associated (or correlated) with LG Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Battery Value has no effect on the direction of IShares Smart i.e., IShares Smart and LG Battery go up and down completely randomly.

Pair Corralation between IShares Smart and LG Battery

Assuming the 90 days trading horizon iShares Smart City is expected to under-perform the LG Battery. But the etf apears to be less risky and, when comparing its historical volatility, iShares Smart City is 1.49 times less risky than LG Battery. The etf trades about -0.07 of its potential returns per unit of risk. The LG Battery Value Chain is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,621  in LG Battery Value Chain on December 23, 2024 and sell it today you would lose (56.00) from holding LG Battery Value Chain or give up 3.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	86.89%
Values	Daily Returns

iShares Smart City  vs.  LG Battery Value Chain

iShares Smart City

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Smart City has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Smart is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

LG Battery Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days LG Battery Value Chain has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, LG Battery is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Smart and LG Battery

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

The idea behind iShares Smart City and LG Battery Value Chain 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..