Correlation Between LG Electronics and Norwegian Air

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

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

Diversification Opportunities for LG Electronics and Norwegian Air

0.27

Correlation Coefficient

LG Electronics  Norwegian Air

Modest diversification

The 3 months correlation between LGLG and Norwegian is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding LG Electronics and Norwegian Air Shuttle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Air Shuttle and LG Electronics 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 Electronics are associated (or correlated) with Norwegian Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Air Shuttle has no effect on the direction of LG Electronics i.e., LG Electronics and Norwegian Air go up and down completely randomly.

Pair Corralation between LG Electronics and Norwegian Air

Assuming the 90 days trading horizon LG Electronics is expected to under-perform the Norwegian Air. In addition to that, LG Electronics is 1.03 times more volatile than Norwegian Air Shuttle. It trades about -0.09 of its total potential returns per unit of risk. Norwegian Air Shuttle is currently generating about -0.07 per unit of volatility. If you would invest  95.00  in Norwegian Air Shuttle on October 23, 2024 and sell it today you would lose (4.00) from holding Norwegian Air Shuttle or give up 4.21% of portfolio value over 90 days.

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

LG Electronics  vs.  Norwegian Air Shuttle

LG Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Norwegian Air Shuttle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Norwegian Air Shuttle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Norwegian Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LG Electronics and Norwegian Air

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

The idea behind LG Electronics and Norwegian Air Shuttle 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.