Correlation Between LG Battery and IShares Smart

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

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

Diversification Opportunities for LG Battery and IShares Smart

0.39

Correlation Coefficient

LG Battery  IShares Smart

Weak diversification

The 3 months correlation between BATE and IShares is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding LG Battery Value Chain and iShares Smart City in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Smart City and LG Battery 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 Battery Value Chain are associated (or correlated) with IShares Smart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Smart City has no effect on the direction of LG Battery i.e., LG Battery and IShares Smart go up and down completely randomly.

Pair Corralation between LG Battery and IShares Smart

Assuming the 90 days trading horizon LG Battery Value Chain is expected to generate 1.36 times more return on investment than IShares Smart. However, LG Battery is 1.36 times more volatile than iShares Smart City. It trades about 0.09 of its potential returns per unit of risk. iShares Smart City is currently generating about 0.08 per unit of risk. If you would invest  1,596  in LG Battery Value Chain on October 9, 2024 and sell it today you would earn a total of  92.00  from holding LG Battery Value Chain or generate 5.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

LG Battery Value Chain  vs.  iShares Smart City

LG Battery Value

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LG Battery Value Chain are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, LG Battery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

iShares Smart City

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Smart City are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Smart is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with LG Battery and IShares Smart

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

The idea behind LG Battery Value Chain and iShares Smart City 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.