Correlation Between LG Electronics and Imperial Brands

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

By analyzing existing cross correlation between LG Electronics and Imperial Brands PLC, you can compare the effects of market volatilities on LG Electronics and Imperial Brands 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 Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Electronics and Imperial Brands.

Diversification Opportunities for LG Electronics and Imperial Brands

-0.89

Correlation Coefficient

LG Electronics  Imperial Brands

Pay attention - limited upside

The 3 months correlation between LGLG and Imperial is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding LG Electronics and Imperial Brands PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Brands PLC 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 Imperial Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Brands PLC has no effect on the direction of LG Electronics i.e., LG Electronics and Imperial Brands go up and down completely randomly.

Pair Corralation between LG Electronics and Imperial Brands

Assuming the 90 days trading horizon LG Electronics is expected to under-perform the Imperial Brands. In addition to that, LG Electronics is 2.9 times more volatile than Imperial Brands PLC. It trades about -0.21 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.22 per unit of volatility. If you would invest  2,998  in Imperial Brands PLC on September 23, 2024 and sell it today you would earn a total of  107.00  from holding Imperial Brands PLC or generate 3.57% return on investment over 90 days.

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

LG Electronics  vs.  Imperial Brands PLC

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. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Imperial Brands PLC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, Imperial Brands unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LG Electronics and Imperial Brands

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

The idea behind LG Electronics and Imperial Brands PLC 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.